Banks will seek greater transparency among privately-owned Saudi firms but continue lending despite a financial dispute that could undermine confidence in the Gulf region, an investment banker said on Monday.
Regulators and bankers are grappling with the fallout from a multi-billion dollar debt restructuring of two large family businesses, Ahmad Hamad Algosaibi and Brothers and Saad Group.
Both local and international banks are estimated to bear about $10 billion in exposure to the two groups, but little information has been made available to investors.
Analysts have warned the dispute, which on Friday moved to a New York court, could hamper lending in a region where local families conduct business on the basis of historical ties, name recognition or reputation.
"The banks will ask for more disclosure, but they will continue to lend, as there are many solid companies in Saudi Arabia ... not everyone has a lot of leverage on their balance sheet," Jameel Akhrass, vice chairman of Middle East and North Africa and head of MENA Investment Banking for Nomura International, said in an interview.
Benefiting from record oil prices, Saudi Arabia has not experienced a liquidity shortage, but banks have become more selective in lending on the back of the financial crisis.
Saudi banks are well capitalized compared with their peers, as they steered mostly clear of the complex, structured products that dragged down financial institutions worldwide.
The government plans to pour $400 billion over the next five years into transport, infrastructure and health projects making it one of the most attractive countries for investment banks seeking to do business in the Middle East.
"There is still a lot of liquidity in the Saudi banking system ... they haven't suffered as much as the international banks, and they will continue to lend to both the public and the private sector," Akhrass, who also heads Nomura's investment bank in the Middle East and North Africa, said.
Nomura recently started operations in Saudi Arabia, which accounts for around 50 percent of the gross domestic product of the Gulf Arab countries.
There are thousands of family-owned companies in the kingdom that could offload subsidiaries, seek expansion or consider a public listing, he said
"There are many big family groups in Saudi that we believe will become more active in the M and A space. We also expect that many of these groups will consider going public over time," Akhrass said.