Saudi Investment Bank (SAIB), which received two rating downgrades in June, has said it and Bahrain-based Al Baraka Banking Group, which offers Shari’a-compliant banking services, have agreed to abandon a 2007 share swap deal.

"The sharp volatility and the fall in the pricing of assets because of the global financial crisis have made it impossible to continue with the procedures of the memorandum of understanding," the two lenders said yesterday (June 23) is a statement posted on the Saudi bourse website.

SAIB and Al Baraka agreed in 2007 to a share swap deal that would have seen SAIB buy 50 per cent of Al Baraka Banking Group from Dallah Al Baraka Group in exchange for shares in SAIB at a price that was to be agreed upon later.

SAIB was hoping the agreement would help it expand its modest domestic reach beyond Saudi borders.

The announcement coincides with mounting concerns over the exposure of banks in the GCC region to two major Saudi family businesses - Ahmad Hamad Al Gosaibi Group and Saad Group entangled in financial problems.

GCC banks have announced varied exposure levels to the two groups and analysts expect provisions booked on these exposures to hit second-quarter earnings.

Last year, SAIB booked about SR968 million ($258.1 million) in provisions to cover losses on investments, leading it to post its lowest net profit in at least four years.

Earlier yesterday, Fitch downgraded SAIB's individual rating to 'C/D' from 'C' citing its "concerns about SAIB's asset quality, particularly because of its high borrower concentrations in a slowing economy."

Standard & Poor's revised on June 2 its outlook on SAIB to negative from stable to reflect "a weakening in the bank's profitability as well as potential deterioration of its financial profile that could result from an increase in nonperforming loans and provisioning needs".

According to Saudi bourse data JP Morgan International Finance holds a 7.4 per cent stake in SAIB which in turn holds a 50 per cent stake in American Express Saudi affiliate.

At the end of last year, Japan's Mizuho Financial Group had a 2.5 per cent stake in SAIB.

BNP-Paribas last year bought a 25 per cent stake in SAIB's investment arm. – TradeArabia News Service