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CENTRAL bank of Bahrain (CBB) has taken control of Bahrain based banks, Awal Bank BSC and The International Banking Corporation (TIBC), owned by debt laden Saudi business groups Saad Group and Ahmad Hamad Algosaibi Bros and Co, and is in the process of appointing an external administrator.
In two separate statements Bahrain's top regulator said that it 'hereby provides notice that Central Bank of Bahrain has assumed the administration of Awal Bank BSC and TIBC'.
It said that this follows an investigation into both banks which have revealed a substantial short-fall of assets compared to liabilities. TIBC had assets of $3.8 billion and Awal Bank had $7.6 billion at year-end.
Once appointed, the external administrator will be tasked with identifying outstanding claims of creditors and submitting proposals on how to satisfy them.
CBB also said that it was examining 'the actions of certain persons connected with the management of the banks to ensure that they have complied with the standards CBB requires of those holding such positions in a licensed entity'.
The step has been welcomed by international ratings agency Moody's which have called it a positive step towards containing the impact on the wider banking sector. Mardig Haladjian, general manager at Moody's in Cyprus said: "Taking control is a positive step towards containing the possible impact these banks may have had on the wider sector.
"For the central bank this is probably a matter of having control over the outflows and inflows (of the two banks), a way for the authorities of overseeing outflows that might be initiated by the owners."
The two family groups are in the process of restructuring debt and are facing a number of court cases by different parties, including Deutsche Bank, over alleged financial irregularities in what has become one of the largest financial scandals in Middle East history.
According to court papers, Maan Al Sanea, Saad Group's chairman is alleged to have siphoned $10 billion (BD3 billion) out of the Algosaibi family company into his own business. Saad has said that it has no business links with Algosaibi.
Standard & Poors said last week that 30 Gulf banks had a combined exposure of $9.6 billion to the two groups, while banks outside the Gulf, including Citibank and BNP Paribas are owed a total of more than $6 billion (BD2 billion) by Saad Group.
The Gulf region has been hit hard by the global financial crisis, which has highlighted problems of transparency and weak regulation.
