Kuwait remains vulnerable due to lack of oversight, regulator

Kuwait City: Kuwait's scramble to prop up a top bank and guarantee bank deposits this week have highlighted its vulnerability in the face of the global crisis despite its enormous oil wealth.

The major Opec producer had to step in this week to save Gulf Bank after the country's fifth-largest bank by market value made losses on currency derivatives just a week after its earnings statement said it enjoyed "a robust capital base".

Kuwait is home to the Arab world's second largest bourse but political bickering has stalled plans to set up a stock market regulator and the lack of oversight means companies can cover up massive losses until the last minute.

Lack of structures

Rules requiring companies to disclose only the most basic financial details make it virtually impossible to predict whether Gulf Bank's problems were an isolated incident or the tip of a large iceberg, say analysts.

The lack of transparency and fear of more troubles to come has left the government struggling to restore confidence in the sinking bourse, weeks after Kuwait's sovereign wealth fund began pumping hundreds of millions of dollars into ailing stocks.

"A lack of structures such as a regulator has increased the impact of the crisis," said Amani Bouresli, a professor of finance at Kuwait University and co-author of a stock market regulation bill that has been delayed for over a year.

The main benchmark, Kuwait Stock Exchange, has fallen about 37 per cent since July, compared to 28 per cent losses on the Dow Jones. Angry investors and traders have been protesting outside the stock market and government offices for days, while depositors at Gulf Bank have demanded that the government do more to save their investments, adding pressure on the state to increase aid.

Mustafa Behbehani, a director at Gulf Consulting Co., said that instead of forming ineffectual task groups the government should have cooperated with the private sector and economic experts and taken more concerted action to restore confidence.

"Despite our oil and surplus we face so many problems. A lack of transparency has made things worse. What we need is an emergency team dealing with the situation," he said.

With stock market rules requiring companies mainly to disclose net profit and earnings per share, analysts say they have trouble assessing the financial health of listed Kuwaiti companies due to a simple lack of published information. "We don't know," said Nasser Al Nafisi, a general manager at the Al Joman Centre for Economic Consultancy.

Gulf Bank only last week said in its earnings statement it enjoyed "a robust capital base" without offering any breakdown for units or key business lines, while market leader National Bank of Kuwait only releases key benchmarks such as interest income annually.

Diversifying

The world's seventh-largest oil exporter has repeatedly said it was committed to diversifying the economy to establish itself as a financial centre, but analysts are sceptical.

"Kuwait continues to suffer from the difficult relationship between the government and parliament as much needed policy implementation is often delayed," regional economist Monica Malek wrote in her latest country report.

Despite the added pressure of the global financial crisis, Commerce and Industry Minister Ahmad Baqer said last week in an interview that the cabinet now saw January as the target date to submit the long-awaited bill to create a stock market regulator. The bill had been scheduled for approval last year.

Even when the bill reaches parliament, analysts say quick approval is far from certain as parliament and government often clash over key projects.

"The government does not understand the seriousness of having transparency on the stock market," said Nafisi.