Saudi Arabia's banks are well positioned to withstand the euro zone crisis, Saudi Arabian Monetary Agency (SAMA) Governor Muhammad Al-Jasser told Reuters Saturday after a meeting of the Group of 20 countries in Paris, adding that the Saudi central bank is going to stick to its strategy in the light of the European debt crisis. He said the Saudi banks were well positioned to deal with any upcoming shocks as well as the European debt crisis. Capital adequacy for banks was north of 17 percent with most of it Tier 1 capital. "That's very robust. Second, our banks sources of funding are predominantly domestic from domestic deposits which is a reasonably stable source of funding," he said. "Most of the lending is domestic also so the exposure to the outside is very limited and therefore we are very confident that our banking system is well positioned to withstand any stress emanating from what's happening in Europe," he said. Robust lending growth to the private sector of more than 9 percent in the first 10 months of the year indicated strong demand, while inflation has stabilized in a tight range of 4.6-4.9 percent and should begin trending down, Al-Jasser said. "Our economy is doing very well and is expected to continue next year. This year, I have forecast that we will have at least 5 percent growth and probably something close to that next year," he said. Moreover, Al-Jasser said interest rates settings were appropriate at the moment with no signs of inflation coming from monetary impetus. "I still think it is an appropriate setting now until we see inflation due to monetary impetus," he said. Asked whether that meant credit growth needed to be in double digits, Al-Jasser said: "Something like that. And it also depends on credit whether it is going to productive activities and leading to growth one would not worry too much about it, if it is going to finance speculative activities one has to worry." The Saudi central bank has been keeping its repo rate at 2 percent since January 2009 and reverse repo rate at 0.25 percent since June 2009. Asked if SAMA had considered buying European sovereign bonds such as Italian ones, Al-Jasser said: "We do not buy specific bonds at all. We have not done it." "We always have a much more integrated reserve investment strategy which looks at it in a continuous and dynamic way that values security, safety and liquidity and therefore we do not look opportunistically at distressed assets or special assets that come up one way or the other," he said after a meeting of the Group of 20 countries in Paris. Moreover, Al-Jasser said "we have gold in our reserves but we have not bought and we have not sold it in a very long time. It has become a very speculative asset and we do not get into any speculative assets." The Saudi central bank's net foreign asset reserves have climbed steadily to a record high of SR1.879 trillion ($500 billion) in August. Gold reserves have been unchanged at SR1.556 billion since 2008, the central bank's data show. Al-Jasser also said US Treasuries continued to be "an important safe haven and major asset" in global financial markets, noting that "62 percent of global reserves are still in US assets. It is safe to say they are there to stay for a while." The SAMA governor further said though the euro zone's debt crisis had become the number one short-term challenge for the world economy, yet he felt the bloc's leaders were determined to find a way out. "Not only Saudi Arabia but members of the G20 are convinced that challenge facing the global economy is the European challenge in the short term," Al-Jasser further said. "However, we felt from the interventions of our European colleagues that they appreciate the gravity of the situation and they are determined to do what it takes to safeguard the European economy and financial markets," he said. "They told us that at the Oct. 23 summit decisions will be taken that will reassure Europeans first, and the rest of the world second, that Europe is not only able but also willing to do what it takes to safeguard the European markets. I take what they told us at face value and I have no reason to doubt their determination."
