Central bankers dismiss US turmoil threat

NO IMPACT: Key Gulf Arab central bank governors said Tuesday their countries faced no serious direct impact from financial turmoil in the US. (Getty Images)

Arab banks have so far escaped a serious, direct hit from the US banking crisis and the region's financial system is not at risk as the fallout sweeps global markets, key central bank governors said on Tuesday.

Banks in Saudi Arabia, the biggest Gulf Arab economy, appear to have avoided serious damage, said Saudi central bank governor Hamad Saud Al-Sayyari, who cautioned, however, that the crisis was only one day old.

"At the moment... I don't see any risk but this crisis has just started yesterday," he said on the sidelines of a central bank gathering in the Red Sea city of Jeddah.

Like markets around the world, Arab stocks have plummeted in recent days due to fear of a fallout in the financial system stemming from the US crisis that started with the collapse of Lehman Brothers.

The weekend's events also saw crisis-hit Merrill Lynch taken over by Bank of America and insurer American International Group scrambling to raise cash, which raised bets on a US Federal Reserve rate cut on Tuesday.

In Saudi Arabia, the largest Arab bourse shed 6.49 percent on Monday's crisis, but the head of the Capital Market Authority said there were no liquidity fears.

"The decline in Gulf Arab markets and especially the Saudi market is a result of the global financial crisis," Abdul Rahman Al-Tuwaijri told Al Arabiya TV. "There is no concern about the lack of liquidity in the market."

Central banks from Sydney to Frankfurt pumped massive amounts of extra money into global financial markets for a second day running to stop money markets from seizing up as the fallout from the crisis sweeps Wall Street's biggest firms.

Even the billions of dollars of emergency funds have failed to prevent a surge in the cost of borrowing between banks.

But the Gulf Arab region, flush with liquidity from over five years of soaring oil prices, has been relatively sheltered from the crisis that has hit the United States and Europe.

Qatar's central bank governor Sheikh Abdullah bin Saud Al-Thani said banks in Qatar had "no exposure at all" to Lehman Brothers or Merill Lynch.

UAE Central Bank Governor Sultan Nasser Al-Suweidi and Oman governor Hamud Bin Sangur Al-Zadjali echoed those sentiments when asked if there was systemic risk.

The region's largest bank by assets Emirates NBD said its exposure was negligible.

"It's nothing that would cause us to lose any sleep," Chief Financial Officer Sanjay Uppal said.

The head of Kuwait's banking association said he doubted lenders faced exposure due to failed or troubled US banks.

"I don't know the numbers but investments of banks outside Kuwait are minimal. I doubt banks will be affected," said Abdul-Majeed Al-Shatti.

In more fragile Arab economies that are not reliant oil exports, banks also appeared to have escaped the worst.

In Lebanon, banks invest some 30 percent of their resources in government debt and another 30 in the financial sector.

"Lebanon is not exposed and is not going to be impacted by the present worldwide financial crisis," Central Bank Governor Riad Salameh said. "The central bank... [has put] constraints on investments in structured products as a whole. Consequently none of our banks are holding sub-prime paper."

In Egypt, poor sentiment and foreign selling hammered the bourse but the credit crunch was unlikely to have a major impact in the absence of a developed mortgage market.

A spokesman for Commercial International Bank, the country's largest lender by market value, said the bank had no exposure to Lehman.

Al Watany Bank, Egypt's third-largest lender by market value, also had no exposure, its managing director Yasser Hassan said. (Reuters)

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