The international lending to Saudi Arabia and the Middle East could shrink due to the debt restructurings of Saudi groups Saad and Al Gosaibi. This follows a similar situation faced by Kuwait; and the companies in the Gulf region may find it difficult to refinance syndicates or bilateral loans.

A Middle Eastern loan specialist said: "We wait to see the ramifications on Saudi and wider GCC private sector entities but clearly there will be reluctance by international banks to support them in the immediate future." The Saad and Al Gosaibi groups are likely to restructure about $10 billion of debt which includes loans up to $6.3bn. Similar issues are a cause of concern for other privately-owned Gulf investment firms too.

Talks are also being held by Kuwait's Global Investment House and Investment Dar with the creditors, as they have defaulted in clearing their debt. The reduction in the lendings by the International banks became effective in August when the real estate and equity markets in the Gulf's dropped considerably by 75 per cent to $13.5bn.

Billions of dollars would be required to refinance these syndicated and bilateral loans to the Gulf companies. The private investment companies involve the ruling families of the Gulf and the government as they are interconnected.

The Governor of the UAE Central Bank said yesterday: "UAE banks have exposure to Saad and Al Gosaibi." Sultan bin Nasser Al Suweidi, while speaking in the Basel, mentioned that the Saudi Central Bank can not freeze accounts of the two firms forever, and a solution has to be found by the Gulf countries as they are the affected lot.

He said: "It's a big issue everywhere. All GCC countries are exposed. The UAE banks' exposure is significant."

Although Jordan's Arab Bank is also affected by the proceedings at Saad and Al Gosaibi groups, its financial position shall not be affected. The bank said:" Its long-term loans were given in exchange for cash, real estate collateral, stocks and personal and institutional guarantees."