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Financial woes mount in region
Kuwait's biggest investment bank, Global Investment House, on Thursday said it had defaulted on the majority of its debt while Bahrain's two biggest commercial banks.
- AP
- Published: 23:47 January 9, 2009
- Traders monitor share prices at the Dubai Financial Market.
- Image Credit: Javed Nawab/Gulf News
Cairo: Kuwait's biggest investment bank, Global Investment House, on Thursday said it had defaulted on the majority of its debt while Bahrain's two biggest commercial banks saw their ratings outlook downgraded, as the global financial meltdown pummelled the Gulf Arab region that months ago was the focus of an economic boom.
Further reflecting the troubles facing the region, Standard Chartered Bank on Thursday revised down its outlook for growth in the region, citing the current global meltdown.
The announcement by Global Investment House was another reminder of the mounting difficulties confronting some companies in the Gulf Arab nations - a region which analysts have said was expected to weather the worst of the global downturn largely because of an oil price bonanza in the first half of 2007.
Analysts have repeatedly argued that unlike their Western counterparts, banks in the Middle East had significantly less exposure to the so-called toxic debt that fuelled the current global financial crisis. That has left them in a better overall situation.
Even so, as international credit markets have dried up and liquidity has been strained in the domestic Gulf markets as foreign investors pull out.
That has prompted the various governments to take a range of steps to bolster confidence, including direct cash injections, guaranteeing deposits and slashing key rates.
The UAE Central Bank, for example, said on Wednesday it had provided about $1 billion in a dirham-dollar swap facility to banks to lower interbank lending rates, analysts said.
Fuelling the concerns in the Gulf has been the collapse in oil prices.
The overwhelming majority of these nations rely on oil for their foreign revenue and to continue funding development projects and other ventures.
As prices tumbled from about $150 in mid July to around $48 currently, project cancellations and delays, as well as layoffs, are increasingly being announced.
"We have consistently taken the view that the Gulf Cooperation Council countries were not decoupled from the global economy or developments in the West," Standard Chartered economists Mary Nicola and Marios Maratheftis said in an e-mailed report.
"With the world economy in recession, there will be downside risks to growth," they said, noting that while those countries are "structurally" healthy, the bank expects the first half of 2009 to be the most challenging.
"The impact of the deteriorating global environment cannot be ignored. GCC countries are open economies, and already the impact on the ground is evident," they said.
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