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Mon 8 Mar 2010 11:29 AM

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Saudi bank lending growth to recover this year - cbank

Governor says strong supply in real estate sector will help keep inflation in check.

Saudi Arabia's bank lending growth is set to recover this year as confidence in the global economy rises and the domestic banking system is liquid and well capitalised, the country's central bank governor said.

Muhammad Al-Jasser of the Saudi Arabian Monetary Agency also told Reuters in an interview that strong supply in the real estate sector will help keep inflation in check in the world's largest oil exporter, adding that he expected this year's non-oil sector growth to be similar to that of 2009.

Saudi bank credit growth was flat throughout much of 2009 due to global turmoil and after defaults by local family firms. Bank credit to the private sector edged up 0.2 percent in January after hitting a 13-month low in the previous month.

"The financial system did not suffer any damage throughout the crisis and banks are well positioned to lend in 2010 as confidence in the global recovery takes hold," al-Jasser said late on Sunday on the sidelines of a meeting at the Bank for International Settlements.

"It (lending growth) should pick up in 2010. The banking system is very solid, very liquid and very well capitalised."

Economists say January's rise in lending to the private sector still pointed to tight credit conditions and greater bank lending is necessary for the private sector to play a fuller role in the economic recovery.

Annual inflation inched down to 4.1 percent in January after a drop in home rents index offset a rise in food prices.

"Inflation is stabilising. A big chunk of inflation pressures is coming from real estate rent. The supply response in the real estate sector has been very strong and continues to be very strong. This should eventually reduce inflationary pressures emanating from that sector."

On the overall economy, al-Jasser said fiscal spending is driving the recovery.

Saudi Arabia, like other nations, boosted spending on infrastructure, education and healthcare last year seeking to underpin economic growth and has repeatedly warned of the need to keep stimulus packages in place and against early exits.

"Fiscal impetus is still very strong and this is keeping up momentum in growth on the positive side," he said.

Saudi Arabia plans to spend more than $400 billion over the next five years to upgrade the country's infrastructure, airports, roads and power plants, benefitting from the huge reserves it accumulated during a six-year boom in oil prices.

The country has estimated that gross domestic product grew by 0.15 percent in real terms in 2009 with non-oil GDP gaining 3 percent.

"2009 growth was flat because of negative growth in the oil sector, which was compensated for by positive growth in the non-oil sector. In 2010 we expect (growth) to be close to the rate achieved in 2009 in the non-oil sector," al-Jasser said. (Reuters)

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