RIYADH: 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 recognize losses and hence strengthen their balance sheets for resumption of normal business in 2010," 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 Arab states, OPEC and G20 member Saudi Arabia does not have a fully independent monetary policy as its currency is pegged to the US dollar.
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.
Economic Recovery Imbalanced
Speaking at the same conference, Saudi Finance Minister Ibrahim Alassad said the global economic upturn is unbalanced and countries with rising debt now faced the tricky task of controlling public finances while running stimulus packages to nurture recovery.
"(The recovery) is strong in emerging and developing nations and weak in developed countries. Despite this recovery, stability has not yet taken a firm footing," Alassaf said.
"One of the risks the global economy faces is shaky public finances and an increase in the public debt ratio in several countries, especially developed nations," he said.
"The crucial task lies in controlling the situation of public finances in these countries without pulling stimulus packages until recovery is confirmed."
Saudi Arabia has approved 652 projects worth 40 billion riyals ($10.7 billion) in the four months to the end of April, Alassaf said.
This compares to around 1,600 contracts approved during all of 2009 worth 126.9 billion riyals, he said.
The Saudi government had planned a 70 billion riyal deficit for 2010, based on a conservative oil price projection of $46 per barrel.
The kingdom has boosted public expenditure over the past two years to counter the effects of the global crisis, drawing on currency reserves that more than doubled as Saudi Arabia amassed substantial revenues from oil exports as crude prices rallied to record levels in 2008.
Saudi Arabia is investing $400 billion in the five years to 2013, mainly to boost infrastructure in the country of 26 million people. –Additional reporting by Asma Alsharif
