Saudi tries to allay economic fears

Saudi Arabia's central bank moved to ease worries about the economy on Monday, saying no banks faced liquidity problems and the stock market rout was due to fear, not fundamentals.

"There is not even one [bank] close to confronting problems," Governor Hamad Saud Al-Sayyari told reporters. "Banks in reality are in an excellent position."

The Saudi Arabian Monetary Agency (SAMA), or central bank, has poured about $3 billion in US dollar liquidity into bank deposits, Al-Sayyari said, confirming what bankers said last week.

Banks have been hiking deposit rates domestically as they compete for liquidity to make up for the scarcity of cash from international markets, he said.

"Banks deposits with SAMA reached more than 25 billion riyals up to yesterday and this exceeds by far the liquidity that was provided [last week] to banks," Al-Sayyari said.

The situation of liquidity in the Saudi banking system can not be likened to what is happening abroad. "Confidence is not missing among local banks," he said.

His assurances came as the world's largest oil exporter saw its bourse tumble 4.15 percent to its lowest level in at least two years. The largest Arab bourse is down 51 percent this year.

He blamed the market's decline on poor investor sentiment due to the global financial crisis, not economic fundamentals.

Saudi oil and petrochemical exports would be affected by the global turmoil, he said noting that a global downturn would also lead to a speedier decline in the country's inflation rate.

Al-Sayyari said last month inflation, at 10.9 percent in August, could begin to fall in the first quarter of 2009.

To cope with the global crisis, the kingdom this month made a rare benchmark interest rate cut and poured billions into banks to ease tight liquidity conditions.

The Supreme Economic Council, the top Saudi economic body, has also offered guarantees for bank deposits, Al-Sayyari said.

It was Al-Sayyari's second news conference this month. SAMA has traditionally met media only once a year for its annual report.

"The market now needs more reassurances on both the macroeconomic and financial fronts, that they are stable," said John Sfakianakis, chief economist at SABB bank.

Al-Sayyari said he was surprised by financial troubles that hit Kuwait's Gulf Bank having attended a meeting of Gulf Arab finance ministers and central bankers 24 hours earlier that expressed confidence in the soundness of banks in the region.

"We were all surprised by what happened with Gulf Bank," Al-Sayyari said. "Any stumble like this raises questions. But I insist that the situation locally is excellent," he said.

"There is no fear and there is no withdrawal of deposits," he said noting that foreign deposits with Saudi banks exceeded for the first time local banks deposits abroad last month.

"This shows... local banks are seen as a safe haven amid this period of doubts," he said. Analysts say many wealthy Saudis repatriated funds from Western banks due to the crisis.

Al-Sayyari said public spending was up 19 percent this year and growth prospects remained strong for this year and 2009. (Reuters)

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