Saudi Arabia's new central bank governor said market talk of tight financing for projects was “probably a little exaggerated” and the Saudi economy and financial sector are “now going through a phase of stability that is subject of envy.” “This shows the success of the monetary policy,” Muhammad Al-Jasser told Al Arabiya television. The biggest challenge lying ahead for the new governor is to “continue on this course and preserve this obvious stability,” he said. Liquidity in the Saudi banking sector is adequate and borrowing cost is now reasonable after the central bank slashed interest rates by more than half since October, he said. “There are some hints in the market that banks are not financing long-term projects. They have not been doing this in an important way in the past and I don't expect them to do that, given the nature of deposits they hold,” he said. “The market talk is probably a little exaggerated,” the new SAMA chief said. “We have not noticed any deficiencies or delay in providing the necessary financing for useful projects,” he said. Commercial banks, he said, have always had a minor role in long-term financing of largescale projects with much of the financial burden being taken by government-owned funds. Al-Jasser, who had been vice governor of the Saudi Arabian Monetary Agency (Sama) since 1995, was promoted on Saturday to the post of governor, replacing Hamad Saud Al-Sayyari who had been at the helm since 1983. Sama's five-time reduction of interest rates since October has slashed interbank lending rates by more than two-thirds, he said. “Now banks say we don't want additional liquidity. In fact they deposited and are still depositing very large sums of money with ... (Sama),” he said. “Liquidity is available and the cost is very reasonable for any loan (need) that is economically viable and deserves financing,” he added. “Commercial banks and firms seeking financing should tap more the debt market with the issue of bonds. I hope commercial banks and also ... companies will start issuing these bonds because these are important long-term financing tools,” he said. “This has been done only a little and offers very huge possibilities to finance large-scale productive projects for the Saudi economy,” he added. Hinting however that banks may have become more selective in financing projects, Al-Jasser noted that it was normal in the aftermath of the global financial crisis. “Banks are seeking ... healthy loans that will be recovered because the main source of financing is ... deposits and these can not be taken lightly,” he said. “We don't live in a cocoon ... Collapses that happened abroad should force every investor and every banker to reconsider loans and projects and this is expected and accepted,” he said. To show that loans have kept on growing in 2008, Al-Jasser noted that bank loans in 2008 equalled their total during the previous two years. “We have not noticed any major change in the volume of loans,” he told Arabiya. The oil-based economy is expected to recover faster than other countries from the repercussions of the global financial crisis, local newspaper Al-Watan on Sunday quoted Al-Jasser as saying. “I don't think you will see a sea change in current monetary policy,” said John Sfakianakis, chief economist at SABB bank, HSBC's Saudi affiliate. “He is a believer at the moment that the peg serves a very important purpose and it is to its advantage. I think SAMA will hold its position on currency policy, on being a proponent of the common Gulf currency and allocating foreign assets in a very conservative manner.” After joining SAMA as vice governor in 1995, Al-Jasser, 54, helped devise the bank's reaction to this decade's oil price rally, an onslaught of currency speculation in 2007 and, most recently, its reaction to an oil price slump and credit crisis. In 2007, as the dollar hit repeated record lows against the euro, currency speculators piled into Gulf Arab currencies on expectations that they could follow Kuwait's lead and sever their dollar pegs to fight decades-high inflation. The currency bets drove the Saudi Riyal to its strongest level in the peg's history. But like Al-Sayyari, Al-Jasser stood steadfastly by the peg, saying at the height of speculation last February that the peg served Saudi interests. “The view is that Al-Jasser played a central role in the good management of the liquidity boom and now you haven't got the same problems in Saudi Arabia as you have in other Gulf countries, like the UAE,” said Monica Malik, regional economist at EFG
