Kuwait saves bank, Saudi extends credit as crisis bites

The Kuwait central bank was forced to step in to support Gulf Bank, which was hit by losses from trading in currency derivatives after the dollar rose, prompting the government to announce it would guarantee local bank deposits.

 

Saudi Arabia unveiled plans to deposit 10 billion riyals ($2.67 billion) into the Saudi Credit Bank, which was established to extend interest-free loans to low-income citizens to help them overcome financial difficulties.

 

The actions spooked investors.

 

Gulf markets tumbled to multi-month lows on Sunday. Qatar and Oman indices fell more than 8 percent, while Dubai sank 4.74 percent and Saudi Arabia's index slipped 3.77 percent after an 8.7 percent slide on Saturday.

 

The losses followed those on global markets on Friday as investors dumped risky assets.

 

The latest moves by Kuwait and Saudi Arabia come after an emergency meeting of Gulf finance ministers and central bankers in the Saudi capital on Saturday, which was aimed at better coordinating the region's response to the global downturn.

 

Gulf Arab nations have so far adopted separate policy responses to the crisis, which has frozen interbank lending and panicked investors. Some Gulf states have guaranteed deposits, eased lending restrictions and invested in ailing stocks.

KUWAITI HEADACHE
The Kuwaiti government also set up a special task force on Sunday headed by the central bank governor to deal with the impact of the financial crisis.
"The market is looking for confidence-building measures. They shouldn't take actions that damage another country's deposit base," said John Sfakianakis, chief economist at SABB bank, HSBC's Saudi affiliate.

 

"As they face this global uncertainty, the central banks need to have a uniform position."

 

Adding to Kuwait's headaches, a parliament member said he would submit a request to question the Gulf Arab state's prime minister partly over his handling of the financial crisis.

 

In the past, such requests have led to ministerial resignations and brought down the government.

 

Adding to the negative sentiment, oil prices dropped nearly $4 a barrel in New York on Friday, despite an OPEC agreement to cut output by 1.5 million barrels a day, amid concerns about a global recession and slowing fuel demand.

 

In the oil-rich Gulf, investors fretted that falling crude prices and an economic downturn would take a heavy toll on growth in the region, which has been booming on the back of a five-fold increase in oil prices since 2002.

 

"Sentiment is so negative that fundamentals are totally being ignored," Shakeel Sarwar, head of asset management at Bahraini investment bank SICO, said. "The focus is purely on what's happening on the international markets.
"The fundamentals of the region have deteriorated over the past two to three months as oil prices decreased. But oil prices above $50 are still comfortable for the region to finance infrastructure projects."

 

GULF BANK PROBLEMS
Gulf Bank, Kuwait's fifth-largest bank by market value, had suffered two straight quarters of falling profit due to bad debt and the impact of weak markets on its investment portfolio.

 

On Sunday, the central bank halted trading in the lender's shares and appointed a supervisor to oversee its treasury, foreign exchange and financial markets trading operations. The central bank said the stock would be suspended until the probe was completed.

 

Gulf Bank ran into problems after some of its clients refused to cover their losses from currency derivatives trades, leaving the bank to foot the costs until a deal was reached.

 

National Bank of Kuwait, the country's biggest bank by assets, put the losses at 150-200 million dinars, Chief Executive Ibrahim Dabdoub said but Gulf Bank General Manager Fawzy al-Thunayan dismissed the comments as too early.

 

"We don't know yet. Dabdoub can say what he wants," Thunayan said, speaking in front of the bank's headquarters where a crowd gathered, adding that deposits were safe.

 

He said the full extent of losses would not be known until Monday, when the bank closes its currency positions abroad.

 

Photo: AP