From the 1990 Gulf War Bank Run to the $22 Billion Saad-Algosaibi Default: Saudi Banking Crises

Across the three decades between Iraq’s August 1990 invasion of Kuwait and the Vision 2030 banking mega-mergers of 2019–2021, the Kingdom of Saudi Arabia confronted three defining tests of financial stability. In August 1990, acute geopolitical panic triggered a sudden withdrawal of roughly 11 percent of all Saudi commercial bank deposits within days, forcing the Saudi Arabian Monetary Agency (SAMA) to mount an unprecedented emergency liquidity rescue while subsequently restructuring the Kingdom’s largest lender, National Commercial Bank (NCB), after the 1991–1992 BCCI scandal. Nearly two decades later, the global financial crisis exposed the perils of uncollateralized “name lending” when billionaire Maan Al-Sanea’s Saad Group and the venerable Ahmad Hamad Algosaibi & Brothers (AHAB) conglomerate defaulted on US$22 billion in cross-border debt in May 2009. The decade-long resolution of that default drove a comprehensive modernization of Saudi insolvency law and culminated in the historic mergers that created Saudi Awwal Bank (SAB) and Saudi National Bank (SNB). ^[1]

August 2, 1990: The Gulf War Deposit Run and SAMA’s Liquidity Backstop#

In the early hours of August 2, 1990, Iraqi armored divisions invaded neighboring Kuwait and advanced to the Saudi border near Khafji. Across the Gulf Cooperation Council (GCC), the shock of invasion ignited an immediate run on commercial bank teller windows and private banking desks as households, expatriate workers, and wealthy merchant families rushed to convert riyal and dinar deposits into physical U.S. dollar banknotes or wire balances to Zurich, London, and New York. Within the first two weeks of August 1990, Saudi commercial banks lost approximately 11 percent of their total domestic customer deposits—roughly SAR 16 billion (over US$4.2 billion)—while international money-center banks in London, Tokyo, and New York simultaneously froze or cut interbank credit lines to Gulf financial institutions. ^[2]

Under Governor Hamad Al-Sayari, the Saudi Arabian Monetary Agency (SAMA, founded in 1952 as the Kingdom’s central bank) acted swiftly to prevent the August 1990 liquidity drain from triggering a systemic banking freeze or breaking the Saudi riyal’s peg of SAR 3.75 to the U.S. dollar. SAMA immediately flooded domestic commercial banks with emergency riyal and foreign-exchange liquidity through repurchase agreements, waived penalties on statutory reserve drawdowns, shipped planeloads of physical banknotes to branches in the Eastern Province and Riyadh, and assured international correspondent banks that the Saudi state stood behind the interbank obligations of every domestic lender. ^[3]

Once U.S. and coalition troops deployed to the Kingdom under Operation Desert Shield in mid-August 1990 and Saudi oil production expanded from 5.4 million to 8.5 million barrels per day to replace embargoed Iraqi and Kuwaiti crude, depositor confidence stabilized. By the conclusion of Operation Desert Storm in February 1991, the SAR 16 billion in flight capital had returned to Saudi commercial banks, initiating an early-1990s domestic equity and credit boom even as the Saudi Treasury shouldered roughly US$55 billion in coalition war outlays. ^[4]

Rescuing Bank AlJazira and Overhauling National Commercial Bank (1991–1999)#

While SAMA’s emergency liquidity facilities halted the August 1990 deposit run, the aftermath of the Gulf War forced regulators to confront deep balance-sheet vulnerabilities at two of the Kingdom’s oldest private institutions: Bank AlJazira and the giant National Commercial Bank (NCB, or AlAhli). Established in 1975 through the Saudiization of the branches of the National Bank of Pakistan, Jeddah-based Bank AlJazira had been burdened since the mid-1980s oil slump by heavy non-performing loans and chronic capital deficits. Determined not to allow a single Saudi commercial bank to fail, SAMA orchestrated a multi-year recapitalization between 1992 and 1994, authorizing sequential capital increases and installing new management after the National Bank of Pakistan’s stake was diluted by Saudi institutional investors. ^[5]

Far larger and more politically sensitive was the crisis at National Commercial Bank. Founded in Jeddah in December 1953 by Sheikh Salim Bin Mahfouz and the Kaaki family as Saudi Arabia’s first licensed bank, NCB operated as an unincorporated general partnership rather than a joint-stock company and ranked as the largest private bank in the Arab world by assets. In July 1991, however, the Bank of England and international regulators shut down the Bank of Credit and Commerce International (BCCI), in which NCB chief operating officer Khalid Bin Mahfouz and affiliates had acquired a major stake in the late 1980s. In July 1992, the New York District Attorney and the U.S. Federal Reserve brought civil and criminal charges against Khalid Bin Mahfouz accusing him of helping BCCI conceal massive losses—charges eventuating in a US$225 million regulatory settlement in 1993 without admission of guilt. ^[6]

At home, the BCCI fallout forced an unprecedented reckoning over NCB’s opaque books. Because NCB had accumulated billions of riyals in unprovisioned bad loans to royal, merchant, and insider borrowers during the 1980s, external auditors refused to issue an unqualified opinion on its 1990 and 1991 financial statements. For nearly three years, NCB published no audited accounts. Under strict SAMA pressure, Khalid Bin Mahfouz stepped down as chief operating officer in 1992, the Bin Mahfouz family injected SAR 6 billion (US$1.6 billion) in fresh capital in 1993 to write off bad debts, and NCB finally converted into a joint-stock company in 1997. Ultimately, in May 1999, the Saudi government’s sovereign wealth vehicle—the Public Investment Fund (PIF)—purchased a 50 percent controlling stake in NCB from the Bin Mahfouz family for roughly SAR 7.5 billion (US$2 billion), permanently ending family control of the Kingdom’s flagship lender. ^[7]

May 2009: The US$22 Billion Saad Group and Ahmad Hamad Algosaibi Default#

Following the 1999 state buyout of NCB and the 2003–2008 Gulf oil boom, Saudi commercial banks enjoyed high capital ratios and surging profitability. Yet beneath the regulated domestic banking sector lurked a massive governance blind spot: “name lending”—the practice by regional and European banks of extending hundreds of millions of dollars in unsecured working-capital, trade-finance, and foreign-exchange credit to prominent Gulf merchant families based solely on family reputation and unaudited consolidated balance sheets. ^[8]

That vulnerability exploded in May 2009 with the simultaneous collapse of two deeply intertwined Eastern Province business empires: the Khobar-based Ahmad Hamad Algosaibi & Brothers Company (AHAB)—a venerable trading, shipping, Pepsi-bottling, and financial conglomerate founded in the 1940s—and the Saad Group, controlled by Kuwaiti-born former fighter pilot Maan Al-Sanea, who had married into the Algosaibi family in 1980 and simultaneously managed AHAB’s financial services arm, the Money Exchange, alongside its Bahrain offshore wholesale bank, The International Banking Corporation (TIBC). ^[9]

Through TIBC and another Bahrain offshore unit, Awal Bank (owned by Saad Group), Al-Sanea had tapped more than 118 Saudi, Gulf, and international banks—including Citigroup, BNP Paribas, Deutsche Bank, HSBC, Mashreqbank, and nearly every major Saudi commercial bank—to borrow billions of dollars in short-term interbank lines and promissory notes, using a large portion of the leverage to amass a US$6.6 billion, 3.1 percent stake in UK banking giant HSBC in 2007. When global interbank liquidity froze after the September 2008 Lehman Brothers bankruptcy and SAMA tightened cross-border funding scrutiny, TIBC defaulted in May 2009, followed immediately by Awal Bank, AHAB, and Saad Group. In late May 2009, SAMA ordered all Saudi banks to freeze the personal and corporate accounts of Maan Al-Sanea.

Combined unpaid liabilities across the Saad Group and AHAB reached an astonishing US$22 billion—roughly US$12 billion to US$13 billion owed by Saad Group entities and US$9.2 billion owed by AHAB—making it the largest corporate debt default in Middle Eastern history. Whereas the Algosaibi family alleged in lawsuits in New York, London, and the Cayman Islands that Al-Sanea had used forged signatures at the Money Exchange to borrow US$10 billion without family authorization, Al-Sanea countered that the Algosaibi partners had long known of and profited from the borrowings. In July 2018, the Cayman Islands Grand Court dismissed AHAB’s US$4 billion fraud claim after finding that Algosaibi principals had been aware of the Money Exchange’s deficit practices for decades.

Saudi Bankruptcy Reform and the SABB–Alawwal and SNB Mega-Mergers (2018–2023)#

Although Saudi commercial banks had to book more than SAR 10 billion in loan-loss provisions across 2009 and 2010 to cover their Saad and Algosaibi exposures, SAMA’s strict domestic single-obligor rules prevented any Saudi bank from failing. Instead, the decade-long legal deadlock over liquidating Saad and AHAB assets inside Saudi Arabia convinced policymakers that the Kingdom urgently needed a modern statutory insolvency regime. Enacted in 2018 under Vision 2030, Saudi Arabia’s landmark Bankruptcy Law empowered the Dammam Commercial Court to take jurisdiction over both conglomerates; in October 2017 Maan Al-Sanea was detained in Khobar to force asset auctions by the Etqaan alliance, and in September 2021 the Dammam court ratified a final SAR 28 billion (US$7.5 billion) settlement plan between AHAB and its creditors.

At the same time, the Public Investment Fund and the renamed Saudi Central Bank (SAMA) spearheaded a historic consolidation of the commercial banking industry to finance Vision 2030 infrastructure megaprojects. In June 2019, Saudi British Bank (SABB, 31 percent owned by HSBC) completed a US$5 billion statutory merger with Alawwal Bank—the Kingdom’s oldest operating commercial bank, founded in Jeddah in 1926 as the Netherlands Trading Society (Albank Alhollandi)—subsequently rebranding as Saudi Awwal Bank (SAB) under Chairwoman Lubna Olayan. Less than two years later, on April 1, 2021, PIF-backed National Commercial Bank absorbed Samba Financial Group (formerly Saudi American Bank, founded by Citibank in 1980) in a US$15 billion merger to form Saudi National Bank (SNB), creating a SAR 900 billion national banking champion forged by thirty years of crisis management and regulatory reform.

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