What broke the bank?
While GCC governments try to reassure investors that the Gulf won’t
suffer the global financial crisis, Gulf Bank in Kuwait has fallen from grace.
October 27, 2008 11:54 by kippreport
Kuwait moved to prop up one of its banks yesterday as the global financial crisis spread to the Gulf, sending stocks into a tailspin.
The Kuwaiti central bank was forced to step in to support Gulf Bank, which was hit by losses from trading in currency derivatives after the dollar rose, prompting the government to announce it would guarantee local bank deposits.
Gulf Bank, Kuwait’s fifth-largest bank by market value, had suffered two straight quarters of falling profit due to bad debt and the impact of weak markets on its investment portfolio.
Yesterday, the central bank halted trading in Gulf Bank’s shares and appointed a supervisor to oversee its treasury, foreign exchange and financial markets trading operations. The central bank said trading in Gulf Bank stocks would remain suspended until the probe was completed.
Gulf Bank ran into trouble after some of its clients refused to cover their losses from currency derivatives trades, leaving the bank to foot the costs until a deal was reached.
Chief Executive of the National Bank of Kuwait, the country’s biggest bank by assets, Ibrahim Dabdoub put the losses at 150 million to 200 million dinars, but Gulf Bank General Manager Fawzy Al-Thunayan dismissed the comments as too early.
“We don’t know yet. Dabdoub can say what he wants,” Al-Thunayan said, speaking in front of the bank’s headquarters where a crowd gathered, adding that deposits were safe. He said the full extent of losses would not be known until today, when the bank closes its currency positions abroad.
Kuwaiti traders staged another walkout yesterday and protested outside the stock market. The traders, who deserted the stock market on Thursday, the business week’s final day, left the trading chamber again after the index dived more than 300 points a few minutes after the opening.
About 30 of the traders marched to the nearby Council of Ministers building where the Cabinet was holding an emergency session to discuss a bill to guarantee bank deposits.
“We want the government to intervene to rescue the bourse and traders. We want the government to buy stocks. This month, I have already lost half of my investments in the bourse,” one of the protesters, Hussein Tubayekh, said.
The Kuwaiti government also set up a special task force yesterday headed by the central bank governor to deal with the impact of the financial crisis.
The actions spooked investors. Gulf markets tumbled to multi-month lows yesterday. The Kuwait Stock Exchange Index shed 3.5 percent to finish at 10,114.30 points, its lowest level since April 2007.
The Dubai Financial Market Index closed down 4.75 percent at 3,102.65 points.
The Abu Dhabi Securities Exchange dived 4 percent with the key real estate sector down 6.5 percent and banking 5.5 percent.
The Doha Securities Market dived a massive 8.93 percent to end the day below the 7,000-point mark at 6,892.95 points. The tiny Muscat Securities Market dropped 8.3 percent to 6,506.03 points, while the Bahrain Stock Exchange lost 3.7 percent.
Saudi Arabia’s index slipped 1.66 percent after an 8.7 percent slide on Saturday.
The Tadawul All-Share Index (TASI) closed 93.10 points down at 5,531.57. The stock market turnover was over SR5.56 billion compared to over SR4 billion on Saturday.
“The market is looking for confidence-building measures. They shouldn’t take actions that damage another country’s deposit base,” said John Sfakianakis, chief economist at SABB bank, referring to Kuwaiti central bank’s action. “As they face this global uncertainty, the central banks need to have a uniform position.”
Adding to Kuwait’s headaches, a Parliament member said he would submit a request to question the country’s prime minister partly over his handling of the financial crisis.
In the past, such requests have led to ministerial resignations and brought down the government.
First seen in Arab News.