Crisis hits Kuwait's Gulf Bank

The Central Bank of Kuwait halts trading in Gulf Bank shares, saying it will appoint an auditor to monitor operations.

The Kuwaiti central bank said Gulf Bank's debacle will not have a substantial impact on its financial status.

Kuwait's Gulf Bank today became the first financial firm in the region to need central bank intervention, highlighting the vulnerability of the GCC to the spread of the global financial crisis in spite of its vast oil and cash reserves. The Central Bank of Kuwait halted trading in Gulf Bank shares and said in a statement that it would appoint an auditor to monitor operations, after the bank suffered losses estimated at up to 200 million Kuwaiti dinars (Dh2.72 billion) due to forfeitures on currency derivatives contracts. Customers had entered into contracts betting that the euro would rise against the dollar, but were startled when the dollar rose in value by more than eight per cent in 10 days. These clients were left with big losses, but were either unable or unwilling to cover them, leaving the bank to foot the bill. The central bank said today that the debacle "will not have a substantial impact on the financial status of the bank and will not affect its capability to continue its activities", according to Reuters. The bank's chief executive said in a statement that the losses "do not raise concerns at all". Nevertheless, stocks on Kuwait's key index plummeted by 3.5 per cent today, prompting a second day of shareholder protests outside the stock exchange after the market's close. Shares in Gulf Bank, Kuwait's fourth-largest bank by market value, were trading at 0.950 dinars before the central bank halted trading, down by about 25 per cent since last month. Kuwait's central bank also moved today to guarantee deposits to shore up confidence in the banking system. This made it the second country in the Gulf to do so, following the UAE earlier this month. And in yet another response to the ongoing turmoil, authorities in Saudi Arabia said today they would inject 10bn Saudi riyals (Dh9.75bn) into the Saudi Credit Bank, an institution meant to provide for the needy in times of financial difficulty. Saudi Arabian officials have also made assurances about the safety of banks, but have stopped short of an official guarantee on deposits. The moves of Kuwait and Saudi Arabia come amid a rush of unco-ordinated responses in the Gulf to the global financial mayhem. The credit crisis and market meltdown have affected Gulf countries principally by making money harder to borrow and sending stock markets into tailspins. But different circumstances in different countries have resulted in a cacophony of measures to address them. The UAE, for example, has extended a Dh50bn credit facility to banks to keep the interbank lending market operating. The Government also has begun to deposit Dh70bn in local banks to help sustain their ability to lend, in addition to guaranteeing deposits. Qatar, meanwhile, has invested in its bank's stocks. Despite urging from economists and global financial authorities to act in unison, GCC countries so far have acted alone. More co-ordination would help revive investor confidence and ensure that imbalances in interest rates and differences in government support of banks do not distort the flow of capital between countries, economists say. The International Monetary Fund last week called for such a unified response from GCC countries, in line with the co-ordinated approach taken by European, North American and Asian leaders. To that end, regional finance ministers and central bankers met on Saturday in Riyadh, yet no plan of action emerged from the meeting. Youssef Kamal, the Qatar finance minister, was quoted as saying that GCC countries had successfully navigated the crisis "through the measures we have already taken", a statement that the actions today in Saudi Arabia and Kuwait threw into doubt. Another meeting of ministers and high-ranking government officials is scheduled today in Abu Dhabi. * with Reuters [e-mail]