The government’s announcement to buy another five percent of local banks’ capital in December will boost their confidence level, say banking industry sources.
Further capital injection into the local banking system is important to make sure that banking assets keep pace with economic growth next year.
The current year hasn’t been encouraging in terms of banking asset growth so far and some banks are likely to actually witness negative growth by year-end over 2008.
“The banks here are not desperate. They actually don’t need capital to survive. They can manage. But if the economy is going to grow next year, which surely will, there could be problems due to capital squeeze,” said a banking industry source.
Reacting to Finance and Economy Minister H E Yousuf Hussein Kamal’s announcement about the state buying another five percent of local banks’ capital in December in an interview with Aljazeera TV Channel, the source said it was a visionary move.
With the economy stabilising with global oil prices remaining between $70 and $80 per barrel next year, the banks will need more capital in order to be able to take more risks.
It is here that the capital injection by the state by way of a further five percent capital purchase would come in handy.
“In the worst case scenario, we are assuming no less than 20 percent banking asset growth next year. This will actually be 20 percent reinstatement considering the reversals of 2009,” said the banking industry source.
Public spending by the state might grow next year as new infrastructure projects as well as those that have been held back, might be launched.
This will see the GDP grow considerably and with it the banking assets next year because the latter is directly linked to the former, the source argued.
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