Yesterday, the Central Bank of Kuwait (CBK) took various measures to “safeguard the country” from the effects of the global financial crisis. To support Gulf Bank, one of the country’s largest banks, CBK’s Governor Sheikh Salem Abdelaziz Al-Sabah announced to the state-run Kuwait News Agency (KUNA) that it would inject liquidity into Gulf Bank in order to help it cover deposit withdrawals, and would safeguard all of its deposits. Gulf Bank announced that trading in its shares had been suspended by the Kuwait Stock Exchange.
Gulf Bank had advised the CBK on October 23 that some of its customers had incurred financial losses resulting from high trading in derivatives, with the losses occurring on account of the significant decline in the exchange rate of the Euro against the U.S. dollar. While the government and Gulf Bank declined to indicate the size of the losses, several reports indicate the losses may exceed $700 million.
Furthermore, the CBK also plans to guarantee all deposits in domestic banks, as it announced to KUNA that it was considering a draft bill “targeting a state protection of all bank deposits.” In weeks past, the CBK announced actions it had taken to boost confidence and strengthen monetary and financial stability in the national economy, including “raising the maximum limit for the ratio of credit facilities to deposits from 80% to 85%, increasing the rate of growth set for bank credit portfolios during 2008 by 5 percentage points for each bank, and considering real estate as one of the acceptable items for the collateral qualified for inclusion in the calculation of the capital adequacy ratio,” and cutting its discount rate by 125 basis points from 5.75% to 4.5%. Today, reports indicate that several Kuwaiti stock brokers demanded that the government temporarily close the Kuwait Stock Exchange, following its sharp decline of 225 points.
In other news in the Gulf region, Saudi Arabia has recently undertaken several measures to ease worries regarding the health of its economy as a result of the global financial crisis. Saudi Arabia’s Supreme Economic Council announced that the government would guarantee bank deposits, while the Saudi Arabian Monetary Agency, the country’s central bank, has reportedly already made billions of dollars in liquidity available to the kingdom’s banks in the past few weeks. In the country’s latest move, the Saudi Press Agency reported that King Abdullah bin Abdul Aziz has ordered the injection of 10 billion riyal (approximately $2.67 billion) into the state-run Saudi Credit Bank, which will provide interest-free loans to low-income citizens.
These measures follow on the heels of this past weekend’s emergency meeting between the Gulf region’s finance ministers and central bankers held by the Cooperation Council for the Arab States of the Gulf (GCC), aimed at coordinating a regional response to the global financial turmoil. The six-member GCC issued a statement in which they expressed “their confidence in the stability of the financial sector in their countries due to its solvency and strength” and “lauded the banking control regulations of the GCC countries and their role in the protection and safety of the banking system which enjoys a great amount of liquidity and efficiency of capital.”
For other measures that Gulf nations have previously taken in response to the global financial crisis, please click here.