Credit crisis forces emergency moves by Saudi and 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.