By Lin Noueihed
Central bank governor urges investment firms to tackle global crisis without state help.
Kuwaiti Central Bank Governor Sheikh Salem al-Sabah has urged investment firms to make their own plans to deal with the impact of the global credit crunch, rather than expecting help from the state.
The failure of an investment firm did not pose the same systematic risk as that of a bank and did not justify the sort of state aid extended last year to the Gulf Arab country's fourth-largest lender, he told Al Arabiya television.
"It is also useful for us to see from investment companies plans to resolve their situation rather than leaving it to the state. They must present plans," he said.
"You are saying that if a company falls it will drag another down but the statements I have do not say this... When they are exposed to problems it is not the same as when banks are exposed to problems. The effects are completely differen", he said.
Kuwait last year stepped in to rescue Gulf Bank after it was hit by derivatives losses. It also guaranteed deposits at all banks in a bid to boost confidence.
"Banks are different from investment companies. Bank balance sheets include deposits. Investment companies have no deposits," Sheikh Salem said.
The state has set up a market-maker fund to try to shore up confidence and liquidity in the bourse that has plummeted in recent months as the global crisis hit the Gulf.
The fund was not intended to prop up share prices, Sheikh Salem said.
The government has also faced demands to support troubled Kuwaiti investment firms, which make up more than half of the country's listed companies and offer typical investment banking services.
Kuwait's largest investment bank, Global Investment House, said earlier this month that it had defaulted on most of its debt, while major Islamic rival Investment Dar has said it needed loans of up to $1 billion.
Analysts expect no general government bailout for investment firms, which they say had have borrowed heavily from local banks as they expanded rapidly during the boom that swept the Gulf in the hey-day of record oil prices.
Falling oil prices and a global financial crisis have since put an end to the years of rapid economic expansion. (Reuters)