Saving GCC banks is probably the most important challenge policy makers are confronting in today’s crisis-ridden world, according to a recent report released by the Kuwait Financial Centre (Markaz).
The report argues that currently the global response to the current financial crisis has been predominantly rescue-package initiated – launched and managed directly by the government in order to rescue local banks, financial institutions and other sectors.
The report strongly recommends that given the current situation in the GCC region, an overt economic stimulus package is no longer a policy option but a necessity.
A fall in oil revenues is imminent, Markaz feels. In such a scenario, the investment company suggests enhancement of the fiscal stimulus plans already announced for 2009 along with monetary easing by the government.
Markaz believes that that there is a lot more room to reduce interest rates by the various central banks in the GCC. The report also expects to see some more cuts in deposit rates in the region during the year.
The Kuwait-based institution suggests that financial institutions should kick start lending to long-term projects.
The report recommends governments to increase their participation in the banking sector by increasing deposits in banks. Such a move would also provide greater room for banks to increase their exposure to risky assets, the report adds.
The report observes that cross border activity as a percentage of the size of the economy provides a better perspective on relative quantum of assets which are held outside the home country. It notes that the net foreign investments for the first time in history of GCC crossed the 50% mark in 2008. The report expects average for GCC to remain stable at 51% in 2009 due to an expected 15% fall in the nominal GDP.
The fall in oil prices may lower broad money/ GDP from its peaks in 2008, Markaz believes. In fact, it expects Bahrain and UAE to clock negative growth in money supply mainly due to the presence of huge number of foreign banks and the level of influence of expatriates in shaping the deposit profile.
In addition, among the GCC countries, the report expects Qatar and UAE to clock negative growth in lending primarily due to the dominant presence of real estate, whose contraction will impact the overall lending. “Loan growth assumed for the rest of GCC countries in the report, though positive, is still far lower than the average growth they have been experiencing in the recent past,” the report adds.For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.