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Saudi banks back to 'normal business'

Riyadh, May 18, 2010

Saudi banks will resume "normal business" this year after difficult conditions following the global downturn forced local lenders to increase provisions in 2009, the central bank governor said on Tuesday.   

Muhammad Al-Jasser of the Saudi Arabian Monetary Agency (Sama) also said economic conditions in the kingdom, the world's largest oil exporter, did not warrant a change in monetary policy yet.

"The fact that our banks have increased provisions is a sign of their ability to clearly recognise losses and hence strengthen their balance sheets for resumption of normal business in 2010," Al-Jasser said in a speech at a financial conference in the Saudi capital Riyadh.   

Earnings at most Saudi banks came under pressure in 2009 as a result of provisions against troubled family firms, and first quarter earnings were depressed by a slowdown in lending.

"Monetary policy has remained accommodative since late 2008, and monetary and credit conditions do not yet warrant a different course of action," he added.

Sama last changed the key repo rate in January 2009, when it cut it by 50 basis points to 2.00 percent. It also halved the reverse repo rate in June 2009 in a bid to discourage banks from placing money at its accounts.   

Like most other Gulf states, Opec and G20 member Saudi Arabia does not have a fully independent monetary policy as its currency is pegged to the US dollar.   

Al-Jasser also said the kingdom was seeing a modest increase in inflation, to which policy changes were not the appropriate response.

"We are observing a modest increase in the domestic inflation rate linked to higher rental rates and food prices but monetary policy is not the appropriate response for such supply shocks," he said.

Saudi inflation climbed to a 10-month peak of 4.9 percent in April due to food and housing cost pressures, but it is seen staying in single digits this year. -Reuters




Tags: Central Bank | Saudi | banks | Sama |

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