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The Saudi Arabian Monetary Agency's (SAMA's) prudent stewardship of the country's banking sector has sheltered the kingdom from greater fallout from the credit crunch. Faced with the Algosaibi corporate scandal, which threatened to engulf the whole sector, Muhammad Al-Jasser steered the agency towards a more cautious approach to banking, resulting in less exposure to US subprime debt.

Many Saudi banks had significant lending exposures to the troubled Saad and Algosaibi corporate groups, which depressed the banks' profitability. Yet thanks to Mr Al-Jasser's tough stance, forcing banks to provision against exposure to the groups, the sector emerged relatively unscathed.

"We were accused of micro-managing. They said that SAMA was intrusive when we said 'slow down'. Now they want to kiss our foreheads. We never ceased believing that regulation must be part of the financial markets. The private interest of bankers must be guided like traffic. The rules must be applied to prevent excessive risk-taking," he says.

The governor has consequently elevated Saudi Arabia's status in discussions on global financial stability at G-20 meetings and the country is now regularly consulted during meetings on the financial crisis.

The financial crisis has heightened the country's awareness of a fully interconnected and interdependent global economy, which has led Mr Al-Jasser to endeavour to enhance financial solvency and promote integration between the units of the financial system.

He has also been promoting consistency and coordination between monetary, fiscal and banking policies as well as exchange-rate policies to support economic growth and intensify economic and trade co-operation among the region's countries.

"We have witnessed how the failure of one international bank affected the liquidity in all markets and how cross-border banking flows contracted," he says.

As a result of its sound approach to regulation and its careful management of its reserves, Saudi Arabia is in better shape than some of its Gulf Co-operation Council (GCC) neighbours. The country posted solid financials in all areas and remains on a firm footing, with HSBC's confidence index for 2010 ranking it the highest of all GCC countries.

Saudi Arabia's experience of the 1980s oil crisis, during which it suffered from the collapse in oil prices, leading to its first ever banking crisis, left it better equipped to face up to more recent events

16/01/2011 
 
 
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