Costs associated with letter of credit (L/C) transactions may be pushed up by Standard & Poor's (S&P's) recently lowered rating of Saudi Arabia according to a prominent businessman.

S&P lowered the kingdom's to "A+" from "AA-" with a negative outlook, largely on the basis of the oil price decline and its implication on the fiscal account over the next few years.

Increased costs

Chairman of Al-Sami Holding Group, Sami Al-Nwaisir, feels the lowered rating raises the possibility that when new L/Cs or guarantees are opened with international banks, shipping fees for insurance and banking transactions will be increased because of the higher perceived risk factor.

Speaking during a debate on the ratings downgrade organised by the English-language newspaper, Arab News, Al-Nwaisir argued that the increased costs would be unfair.

Robust economy

He argues that Saudi Arabia's underlying economy is robust, and that the downgrade focuses too strongly on the oil price and too little on the country's economic fundamentals.

This was the consensus of other participants in the debate, who included group chief economist at the National Commercial Bank, Said Al-Shaikh and chief economist and head of research at Jadwa Investment, Fahad Alturki.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.