Spreading risk best bet in troubled times

Okay, so everything looks quite fine in the UAE despite the liquidity crisis that has ripped through the global banking industry.

Companies are still hiring new staff. All banks are still running. No massive layoffs and impending bank closures have been reported. So, are we good?

The problem is, no one can predict exactly what the future holds, or how much destruction the crisis will cause and which countries, companies or banks it will hit next.

Top financial experts themselves have admitted time and again that the Gulf, though awash in oil and cash reserves, is not completely immune to the global turmoil.

"Clearly, there is going to be an impact on most economies around the world, given the strong inter-linking of the world financial markets. The UAE is no different in that respect, with the dirham pegged to the US dollar for instance. The crashes in the GCC stock markets are testament to this," says Deepak Chainani, Association of Chartered Certified Accountants (ACCA) Middle East country manager for UAE and Qatar.

Only over a week ago, the Central Bank of Kuwait stopped trading in Gulf Bank shares, after the country's second largest commercial bank incurred over Dh2.7 billion in losses due to forfeitures on currency derivatives contracts.

Kuwait's central bank was quick to guarantee bank deposits and cobbled together a hasty bailout, the first bank rescue in the Gulf.

Saudi Arabia, for its part, also assured that some $2.7 billion (Dh9.9 billion) in interest-free loans would be extended to low-income Saudis.

Deposit protection

So, amid all the gloomy economic news, what do ordinary consumers make of it all? What all of these mean to them is that they too are vulnerable and many are bugged by the same question: what if the crisis hits home and my bank runs out of cash?

A depositor can't tell exactly if his or her bank is doomed to fail. The best way to look at it, according to an industry source, is find out if the government and financial regulators honour the banking system with deposit protection.

In the UK, the Financial Services Authority and the government said they have increased the compensation limit on deposits with banks, building societies and credit unions that fail from £35,000 (Dh234,500) up to a total of £50,000 for each customer's claim.

Customers who have joint accounts are eligible to claim up to £100,000 between them.

In the UAE, the government was quick to announce that bank deposits would be guaranteed and assured everyone that the local banking sector is reasonably robust.

It has also funnelled some Dh120 billion into the local banking system. Such a move was greeted with praise.

However, if consumers are still worried about the security of their savings in banks, they are advised to spread their money.

Chainani says it is vital that people seek advise from professional financial experts on how they can best diversify their portfolio and ensure that their savings are left only in the hands of trusted and regulated financial institutions.