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KUWAIT CITY–Kuwait’s Central Bank stepped in yesterday to prop up one of the country’s biggest banks and said it was considering guaranteeing deposits in domestic banks – in one of the first concrete signs that the global financial crisis may next hit the oil-rich Gulf.
In Saudi Arabia, meanwhile, the government said it would deposit $2.7 billion (U.S.) into the Saudi Credit Bank to help lower-income citizens deal with financial difficulties, the country’s Al-Ektisadiya newspaper reported.
The two moves came just a day after finance ministers from the six-nation Gulf Co-operation Council, or GCC, held an emergency meeting to echo assurances, which they have repeatedly voiced over the past few weeks, that the region’s banks face no liquidity crisis.
Kuwait’s decision to stop trading in shares of Gulf Bank sent a shock wave through the country’s bourse, which closed down almost 3.5 per cent and brought its year-to-date losses to more than 19 per cent.
“The halting of Gulf Bank shares spread panic in the bourse today, because the government has been saying banks are safe from (global financial crisis) losses,” investor Ahmed Fadhli said in an interview.
The central bank order said trading in Gulf Bank shares would be suspended pending an investigation into the derivatives deals that caused the losses.
The bourse’s statement said some investors had balked at covering their losses, but neither the central bank nor Gulf Bank indicated the scope or time frame of the bank’s losses.
But one banking official who spoke on condition of anonymity estimated the bank’s losses at up to $749 million (U.S.).
Over the past few weeks, Kuwaiti investors have voiced concerns about the market. One stockbroker unsuccessfully sued to temporarily close the bourse while other traders last week stormed out of the exchange, demanding the government intervene to halt their near-daily losses.
Investor Fadhli said about 40 brokers walked yesterday from the exchange to the nearby seaside Seif Palace, demanding to see Prime Minister Sheik Nasser Mohammed Sabah, to ask for more government intervention.
The Gulf Bank news further fuelled market turbulence in the broader GCC, not just in Kuwait, a tiny country which is far more dependent on oil revenue than many of its other Gulf counterparts.
Oman’s stock exchange was down about 8.3 per cent while Qatar’s exchange was off almost 9 per cent. Saudi’s benchmark Tadawul index was down a moderate 3.06 per cent, a day after plummeting over 8 per cent.
Yesterday was a normal business day in the Arab Mideast, which usually observes Friday as the weekend.
So far, the Gulf countries have been thought to be protected from the crisis, in part because of the cushion of oil money many of them have built up during years of high oil prices. However, because most of the region’s banking sector is privately held, not much is known about the institutions’ true risk exposure levels…
