Subprime woes could still hit Gulf

Dubai: The direct subprime exposure of Gulf banks has been limited so far with less than $3 billion disclosed, but much more has yet to be revealed, according to a Gulf Research Centre report.

Eckart Woertz, programme manager, econ-omics, Gulf Research Centre, and author of the report Impact of the US Financial Crisis on GCC Countries, said that until now, the announced subprime exposure of Gulf banks of about $2.7 billion seems small compared to over $500 billion in Europe and the US.

"Part of this may be attributable to a lack of transparency, with more exposure likely to surface over time," he said. He added that on the other hand, there is evidence of Gulf banks being more conservative than those in the US and Europe.

"In many cases, the investment criteria of banks did not allow the purchase of non-investment grade bonds or complicated structured products," Woertz said.

This may have been the reason behind the limited exposure, proven to be beneficial now that such products are literally discredited, he said.

Further supporting the perspective, the report said that although Standard and Poor's considers the overall Gulf subprime exposure to be limited, it also believes that banks may be concealing related losses and more might surface in the future.

Bringing into focus specific cases, the report added that while the UAE Central Bank has asked UAE banks to declare their exposure to Lehman in the wake of the bankruptcy of the US bank, no public announcement by banks about further exposure has resulted.

"Exposure could be in the form of bank bonds, derivative trades where Lehman has acted as counter party, credit default swaps or structured investment products that were guaranteed by the failed US investment bank," Woertz said in the report.

Moreover, sovereign wealth funds, which manage the majority of the assets in the region, add another element of undisclosed exposure to the equation.

Woertz said that while public data is not available for the large investing entities, estimates are that their exposure must have been considerable.