Kuwait backs bank deposits as Gulf central bankers reassure investors

Dubai, Kuwait City: Kuwait passed a law to guarantee bank deposits yesterday even as Gulf central banks offered reassurances about the health of their banking systems, saying there was no need to provide more assistance to lenders.

The government-sponsored bill came after the central bank stepped in to save the country's fifth-biggest lender, Gulf Bank, this week following steep derivatives losses.

The news sent shockwaves through Gulf bourses, sending stocks into a tailspin and investor confidence to new lows.

Kuwait's central bank governor said yesterday he was confident the lender's troubles would not spread to other banks.

"I'm not worried at all about the others," Shaikh Salem Abdul Aziz Al Sabah said. "The risk even with Gulf Bank now has been minimised and very shortly it will be restructured."

The new law covers some 23 billion Kuwaiti dinars ($87 billion, Dh299 billion) held in deposits in Kuwaiti banks and covers all types of deposits, a parliament member said. Any losses would be covered by the state's general reserves fund, which is managed by its sovereign wealth fund, the Kuwait Investment Authority, according to the bill.

Like the rest of the world, the region's banking sector has been thrust into turmoil amid the global financial crisis, with central banks forced to inject liquidity into the system to ease tight credit conditions.

Saudia Arabian central bank Governor Hamad Saud Al Sayyari said the world's top oil exporter had no need to merge its banks in response to the global financial crisis.

"They don't need any assistance, they are highly liquid and have good capitalisation," Sayyari told reporters on the sidelines of a meeting of Middle East and Asian central bankers in Dubai yesterday.

Qatari central bank Governor Shaikh Abdullah Bin Saud Al Thani echoed that confidence. "The central bank has lots of instruments in the open market and we can utilise them whenever needed," he said.