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UAE, Saudi banks get $10b
The UAE and Saudi Arabia poured up to $10 billion into their banks to ease tight conditions as Gulf Arab policymakers prepared to discuss a co-ordinated response to the global econ-omic crisis.
- Agencies
- Published: 23:45 October 21, 2008
Riyadh/Dubai: The UAE and Saudi Arabia poured up to $10 billion into their banks to ease tight conditions as Gulf Arab policymakers prepared to discuss a co-ordinated response to the global econ-omic crisis.
The Saudi central bank injected up to $3 billion into banks struggling to cope with global financial turmoil while the UAE Ministry of Finance funnelled Dh25 billion into banks as part of a Dh70-billion rescue facility.
States across the world's biggest oil-exporting region are trying to cope with the worst global financial crisis since the Great Depression, which threatens to put the brakes on a regional economic boom.
"The main challenge for Gulf states is to shore up confidence in the banking system and get the credit cycle going again," said Mushtaq Khan, regional economist at Citigroup Global Markets. "They can't have diverging money-market conditions. Each country is most likely going to make decisions based on demands of their separate markets."
In the past month, Gulf central banks and governments formulated separate responses to the crisis, including guaranteeing bank deposits, easing lending restrictions, setting up emergency funds and pouring money into ailing stock markets.
The Saudi Arabian Monetary Agency (Sama) took the latest step to defrost interbank lending by pouring between $2 billion (Dh7.34 billion) and $3 billion in the form of riyal and dollar deposits with banks on Monday, bankers said on Tuesday.
The UAE Finance Ministry transferred Dh25 billion into banks based on the size of their loan portfolios, it said in a statement yesterday. "This portion... is designed to support the capital of national banks," the ministry said.
Impact
Interbank rates eased on Tuesday after the moves, with the three-month Saudi Interbank Offered Rate falling to 4.6375 per cent from 4.65125 per cent.
Saudi Arabia, the UAE and four other members of the Gulf Cooperation Council (GCC), which is preparing for monetary union, will meet on October 25 to discuss how they can better co-ordinate policy responses, Gulf sources said on Tuesday.
The global turmoil has hit the Gulf region after six years of high oil prices allowed state and private investors to funnel billions of dollars into industry and infrastructure projects.
"It is normal that we be affected by what is happening in global markets," UAE Minister of Economy Sultan Bin Saeed Al Mansouri said. "But there are elements of confidence and protection that are relevant to the particulars of our economy and its diverse base of income," he said in remarks reported by the daily Emarat Al Youm.
This week's meeting of finance ministers and central bank governors in Riyadh follows a call from Saudi Arabia's highest economic body for Gulf states to look at how they can coordinate their policies as Western economies head for a likely recession.
It will also happen the day after the Organisation of Petroleum Exporting Countries (Opec) holds its own emergency summit on oil prices, which have tumbled since hitting record highs above $147 a barrel.
"Most Gulf central banks have started moving in some way or the other. If they sit and discuss it they can come out with formulated ideas," said EFG-Hermes economist Monica Malik.
"The priority for all Gulf states is going to be to look out for their domestic economies," Khan said.
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