Credit crisis forces emergency moves by Saudi, UAE

By Lin Noueihed and Souhail Karam

DUBAI/RIYADH (Reuters) - Saudi Arabia slashed interest rates for an unprecedented third time since October and the United Arab Emirates intervened in a property merger on Sunday in moves to contain the impact of the credit crunch.

The developments show how the global financial crisis has torn through the Arab Peninsula, until recently thought immune due to massive sovereign savings and earnings from energy exports, with almost the same violence as in Europe and North America.

Saudi Arabia, the world's biggest oil exporter, reduced its key repurchase rate by 100 basis points to 3 percent to keep credit markets moving and boost domestic liquidity.

The kingdom's central bank also lowered reserve requirements to 7 percent from 10 percent, prompting one economist to say the two actions may mean the central bank has detected "serious slowdown signs especially in the private sector."

"(The central bank) is trying to stimulate the economy. There could be a slowdown coming from the credit area," said Muhammed Younas Malick, senior economist at the state-controlled National Commercial Bank in Jeddah.

A credit slowdown has already afflicted the UAE's property sector, which had enjoyed a five-year boom.

Lenders and developers in the UAE have been battered by the credit crisis as market financing evaporated, property values plunged and buyers fled a market where land values have soared.

On Sunday, the finance ministry announced that two of the UAE's largest mortgage lenders, already on track to merge, will be brought under a state-owned bank, in the first sign of federal intervention in Dubai's troubled real estate sector.

Trading in Amlak and Tamweel, which have been struggling due to the credit crunch, was suspended after the ministry said it would supervise their merger under the state's Real Estate Bank to ensure a fair valuation and protect shareholders.

"For Amlak and Tamweel, it was always clear that some level of government support was necessary," said Raj Madha, a banking analyst at EFG-Hermes in Dubai.

"There were three problems that Amlak and Tamweel were facing: funding, liquidity and solvency. A merger between the two would have made no difference to those problems but an integration with Real Estate Bank effectively addresses all three of those issues," he told Reuters.

The combined market value of the firms is 2.5 billion dirhams ($681 million) -- roughly one third of their worth on October 4 when the two Dubai-based firms first announced merger plans.

'ABU DHABI LENDING CREDIBILITY TO DUBAI'

Little-known Real Estate Bank is a government-owned entity aimed at supporting the real estate sector and provide housing for UAE nationals, according to its website.

Earlier this month, Tamweel told Reuters it was in talks with the central bank and finance ministry about their "short-term requirements facility," and long-term funding options once its merger with Amlak had gone through.