OPEC CUTS PRODUCTION TO FORCE OIL HIGHER AS ARAB BANKS STAGGER

Gulf Bank Customers Withdraw Deposits After Losses (Updtate1)

By Fiona MacDonald and Arif Sharif

Kuwait’s second-biggest lender by assets, is trying to stem a surge in customer withdrawals after currency losses forced the central bank to guarantee deposits.

In the first signs of a bank run in the Persian Gulf, some Gulf Bank depositors panicked and demanded their money, Fawzy al- Thunayan, general manager for board affairs, said in an interview today from Kuwait. “We can’t blame them,” he said. Trading in the Kuwait City-based bank was suspended for a second day.

While the Persian Gulf had been mostly insulated from the global credit crunch until now, Kuwait is the third state there to prop up its banking system as the end of the oil boom weighs on the region’s currency, stock and real estate markets. The United Arab Emirates said Oct. 12 it would guarantee deposits of all local banks and large foreign banks, and Saudi Arabia put $2.67 billion into the government-run Saudi Credit Bank, based in Riyadh, to provide no-fee loans to low-income citizens.

“The fear factor is now seeing its way into the Middle,” said Haissam Arabi, who oversees $1.8 billion as managing director of asset management at Shuaa Capital PSC in Dubai. “The ripple effect of the credit crunch has spread to the Middle East because we’re no longer an island economy.”

Saudi Arabia’s government injected the equivalent of $5 billion into Saudi banks on Oct. 20 to lower interbank lending rates and meet a shortfall of dollars, the first such move in 10 years, Saudi British Bank said Oct. 21.

Falling Oil Prices

Crude oil prices are down 57 percent from their peak of about $147, eroding budget surpluses in Persian Gulf states. The six Arab Gulf economies, which pump almost 23 percent of the world’s oil, need prices to remain above $60 to $65 a barrel to sustain spending, investment bank EFG-Hermes Holding SAE said in a report Sept. 23. Oil fell to a 17-month low of $63 today.

Kuwait’s Central Bank Governor Sheikh Salem al-Sabah said yesterday that 48-year old Gulf Bank lost money on currency derivatives after the euro declined against the dollar, state news agency KUNA reported. Gulf Bank will absorb the losses until it can work out an agreement with clients, Sheikh Salem said.

Gulf Bank remains solvent despite the defaults on currency derivatives contracts, the state-run Kuwait News Agency cited Kuwait Finance Minister Mustafa al-Shimali as saying yesterday. Kuwait’s central bank will propose a bill to parliament to guarantee all bank deposits in Kuwait, KUNA reported yesterday.

Gulf Bank had assets of 5.1 billion dinars and deposits of 3.2 billion dinars at the end of March, according to Bloomberg data. It has 44 branches across Kuwait, its Web site says.

Estimated Losses

While the company declined to disclose the size of its currency losses, they may have been as much as 200 million dinars ($746 million), according to Ibrahim Dabdoub, chief executive officer of National Bank of Kuwait SAK, the country’s biggest bank by assets, said yesterday.

Kuwait’s benchmark share index fell 2.2 percent to 9,889.3 today, extending losses for the year to 22 percent. The credit crisis has also resulted in a collapse of share prices in the Middle East, with Saudi Arabia’s benchmark share index falling 52 percent this year and Dubai’s by 51 percent, as the global meltdown battered local sentiment as well.

Falling share prices in the Middle East have forced banks to write down the value of their investments. Emirates NBD PJSC, the U.A.E.’s biggest bank by assets, said Oct. 22 it will take 273 million dirhams of writedown in the third quarter, while third- ranked Abu Dhabi Commercial Bank PJSC took a 208 million dirham loss for the same period.

Frightened

Khalid Al-Matrook, a 33-year-old civil engineer, was among customers standing outside Gulf Bank’s head office in Kuwait City today. He said he was frightened by yesterday’s news of the currency defaults.

“I am withdrawing my 12,000 dinars now and I am not going to spend one penny of it,” said Al Matrook, sipping coffee outside the bank building. “I am going to deposit it in NBK (the National Bank of Kuwait) or Commercial Bank.”

About 40 stock traders in Kuwait marched from the Kuwait Exchange to the Seif Palace, where the cabinet sits. They are demanding that Kuwait’s Emir Sheikh Sabah al-Ahmad al-Jaber al- Sabah act to halt the decline in share prices in the country, stock trader Mohammed al-Dosari said today in an interview.

“I used to have 400,000 dinars to trade with, and now I only have 20,000 dinars,” said al-Dosari. “This is a big national disaster. We don’t want the government to make the market go up, we just want to stop this panic.”

“Everything is operating as normal,” said al-Thunayan. “The central bank is giving us support on all fronts,” he said, adding that none of the board has resigned.

Investigation

Governments around the world have moved to shore up banks weakened by the financial crisis. The U.S. government plans to spend $125 billion out of $700 billion approved by Congress to buy shares of nine of the largest U.S. banks. France said Oct. 20 it will provide BNP Paribas SA, Societe Generale SA and four other French banks with 10.5 billion euros ($14 billion).

Gulf Bank’s losses from derivatives trading is being investigated by the central bank and will be announced when the probe is completed, said Abdul Majeed al-Shatti, head of the Kuwait Banks Federation told Dubai-based Al-Arabiya TV today.

Finance companies worldwide have taken $681 billion of losses and writedowns following the collapse of the U.S. subprime- mortgage market.