The Closing Bell

I had received this cartoon image as a part of one of those ‘start of the week’ forwards. I don’t usually read all my forwards to be quite honest as they quite often fail to amuse me. However considering the global financial crisis resulting in the paramount economic gloom and the plummeting state of affairs for countries across the globe, its only natural that I went through a forward with the title – The Closing Bell.

A great deal of people would have lost a huge chunk of their hard earned savings and the fortunate ones would have lost slightly less in comparison. We here in the Middle East have been continually reassured that we are mostly insulated from the rest of the world. But are we really?
One of Kuwait’s largest lenders, Gulf Bank is said to have incurred losses of up to 200 million dinars after some clients defaulted on derivatives contracts linked to the euro. The loss occurred as result of the significant decline in the exchange rate of the euro against dollar. However, the headline news in Kuwait Times today stated, “No need to panic-Central Bank”. The Central Bank has stated that the losses will not affect the Banks financial position and has guaranteed to back the Bank and its deposits. And the government is reportedly pumping KD 1.5 billion to shore up the banking sector.

These efforts ought to help the depositors bring back their confidence. Here in Oman, the CBO’s conservative banking regulations (which was often criticized earlier) is now actually working in favor of the depositors in this global tumult. “As a pre-emptive measure, before RO liquidity becomes a concern for the local banking system, CBO has decided to effectively reduce the reserve requirement (by allowing CBO CDs and cash portfolio of banks under the 8 per cent reserve requirement up to 3 per cent), which would inject about RO 270 million back into the banking system, and that would be available to them for meeting their short-term liquidity needs. The lending ratio norm, which had to be tightened from 85 per cent to 82.5 per cent effective from November 2008 to contain fast growth in credit in the banking system, has also been deferred till restoration of normal conditions in the international markets, so that banks could continue to lend and meet genuine credit demand in the country.”(Source: Zawya)

Depositors should be able to distinguish between banks that are directly affected by the crisis and those that are indirectly affected due to the weakening confidence and panic in the market. They should be able to draw confidence from the concrete capital and profit figures of the banks and also from the willingness of our government authorities to intervene at any stage to ensure the smooth running of Oman’s banking system.

It’s a rough time for everyone. But Cést la vie. Based on facts and figures, let’s work towards steering clear of the increasing panic.