Gulf Bank of Kuwait (GBK) Possible Collapse – (Update) October 26, 2008
Posted by mylastresort in analysis.Tags: Bankruptcy, Central Bank of Kuwait, economy, GBK, Gulf bank of Kuwait, Intervention, kuwait
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Following the reports of Gulf Bank of Kuwait (GBK) suffering massive losses earlier this morning I have decided to explain the severity of the situation and the possible outcomes which might occur.
Initially, the bank will lose credibility both, locally and internationally. Customers will demand their cash from their accounts and early maturity from their deposits. Corporate clients will not risk their businesses future with an ailing bank and cease operating in their GBK accounts. No banks will deal with a bank rumored to be in a bad position. Therefore GBK funds will freeze. THE BANK WILL FAIL EVENTUALLY its just a matter of time. Following a run on Gulf Bank of Kuwait (GBK) and a liquidity squeeze the bank will be forced into one of the following outcomes: (more…)
CBK: Breaking the Bank September 28, 2008
Posted by mylastresort in analysis, rumors.Tags: Bank of England, Breaking the Bank, CBK, Central Bank of Kuwait, Crisis, economy, George Soros, Hedge fund, investment, Speculators
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Currency speculators have for years been tackling central banks in surprise attacks in an effort to reap large rewards from ‘breaking the bank’.
One of the most memorable events was ‘Black Wednesday’ of 1992 which took the Sterling Pound off of its goals of joining the European Central Bank (ECB). In 1992, currency speculators unexpectedly attacked the Bank of England (BOE) forcing it to alter the strict regulations associated with joining the union. Later, the BOE was not able to conform to the standards set by the ECB forcing it out of the European Union (EU). (more…)
Part 3: The Collapse of the KSE September 9, 2008
Posted by mylastresort in analysis, qatar, saudi arabia.Tags: bahrain, Central Bank, Central Bank of Kuwait, Collapse, economy, Government, inflation, KSE, Kuwait Stock Exchange, qatar, Regulations, uae
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Kuwait’s Neighboring Nations
In Bahrain and the United Arab Emirates (UAE) riots began to proliferate among residents demanding action due to the rising prices in consumer goods. Doha and Dubai pride themselves as being tax havens while avoiding to mention double-digit inflationary figures. During the summer of 2008 all of the Gulf countries had peaked to record inflation levels never before experienced in the region.
The Lender of Last Resort
One of several methods to drain liquidity from the markets would be to increase interest rates to levels that would tempt investors to leave the exchange and head to the banks. The Central Bank of Kuwait (CBK) had failed to affect the markets in its previous attempts at raising rates therefore decided to force banks to increase rates without hiking the discount rate, by altering the money supply.
During July 2008 banks experienced a severe loss of liquidity in the market that forced banks to rapidly increase rates in an attempt to remain solvent and avoid the penalties set by the lender of last resort. Short-term deposit rates increased dramatically as banks battled for funds in order to remain solvent. Market participants finally recognized that banks were offering attractive rates that were enough to make them shift to deposits. During the period, banks were behind hundreds of thousands of dinars per day in penalties and exaggerated deposit rates forcing the central bank to flood the market with funds to avoid creating a new crisis.
Part 2: The Collapse of the KSE September 8, 2008
Posted by mylastresort in analysis, bahrain, qatar.Tags: bahrain, Central Bank, Central Bank of Kuwait, Collapse, economy, Government, inflation, KSE, Kuwait Stock Exchange, qatar, Regulations, uae
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The CBK Regulations
The Kuwait Stock Exchange (KSE) had exhausted all locally available funds by 2005. Beginning in 2006 the market was increasing based on the concept that investors who entered into new positions were not selling shares in the market to buy new ones rather they were trading on leverage, obtaining bank loans, or selling foreign assets to acquire additional exposure in the surging market. The regulators acknowledged the pending epidemic and set up sequential regulations at drying up liquidity in the market to contain inflation.
The Single Gulf Currency
Beginning in 2004 serious discussions between the six GCC nations began regarding the unification of the Gulf’s currency. Central bank Governors would hold regular meetings to discuss methods and deadlines for the process. The Governors decided that no major changes to currency policy would occur and that inflation must be contained to strict measures prior to the 2010 deadline. Following a regular meeting in May 2007 the Central Bank of Kuwait unexpectedly announced that it has entered into a currency basket, citing that the falling US dollar would boost inflation if the country remained in a pegged exchange rate system. The move astonished other members of the GCC since the move was in direct violation of the terms the countries agreed upon hours earlier. The currency revaluation was one of the the earliest moves the CBK had undertaken to combat the predicted inflationary threats of today.
The Regulations
In the short period following the Kuwait Stock Exchange (KSE) reaching the 10,000 points level the Central Bank of Kuwait (CBK) would unleash several coordinated regulations each serving the same purpose: Contain inflation. The CBK would allow listed companies to call for capital increases. Many companies increased capital, sending frantic investors to local banks to obtain loans. Then the first of the major regulations occurred, the CBK abruptly prohibits real estate investment and its use as collateral for borrowing purposes. The move prevented many from increasing debt to finance new investment opportunities. The move also sends the real estate market to decline by up to 40% in some areas forcing investors increase collateral or repay loans.
The CBK continued to allow companies to raise capital sending investors to the banks once more, this time to get consumer loans (without collateral) and placing the funds in the exchange. The central bank was adamant at ending leveraged positions in the markets, hence it announced a cap on consumer loans forcing market participants to only use available cash to invest in the exchange. No longer could individuals obtain massive loans to invest in the booming markets. The central bank predicted that the inflation rate would finally decrease. Soon after, the CBK surprisingly announced the highest inflation on record.
Part 1: The Collapse of the KSE September 7, 2008
Posted by mylastresort in analysis, bahrain, qatar, saudi arabia.Tags: bahrain, Central Bank of Kuwait, Central banks role, Collapse, economy, Government, inflation, KSE, kuwait, Kuwait Stock Exchange, Part 1, Part 2, Part3, qatar, Regulations, uae
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The recent collapse in the Kuwait Stock Exchange (KSE) index this past week has not been given its proper placement in the headlines. I have found it difficult to find resources covering the details of the collapse or reasons justifying the decline. Some might hail the events as a market correction but I believe the reasons are far more complex and intertwined with recent economical events in the country.
This post will be composed of 3 parts.
A Brief History of the Local Economy
Economies across the globe experienced massive economic prosperity beginning after the millennium ending in 2007. Emerging markets were recognized as superior untapped resources by some of the leading financial institutions. Several companies relocated to the third world in a race to attract as much wealth as possible. Investors in New York, London, and Paris devised plans to invest in countries they could not locate on maps. During the same time Kuwait experienced its own expansion of economic growth.
The rush of riches to the citizens from a single source in a rapid pace began worrying regulators. The Kuwait Stock Exchange (KSE) index multiplied exponentially in 10 years from 98 to 08. During this short period, college graduates headed directly to the exchange for employment regardless of specialization. Housewives began exchanging stock tips. Industrial and service companies began trading the markets neglecting their core businesses. Investment companies began propping up across the horizon. They all shared the same objective: To generate as much wealth in the shortest time possible. In order to maintain economic stability in the nation the central bank of Kuwait would need to act by containing growth to prevent surging inflation.
CBK Vs the Government
The Central Bank of Kuwait (CBK) has recently been finding it difficult to contain inflation using conventional methods. Central banks around the globe use their power to predict the future behavior of markets and adjust interest rates, money supply and use influence to guide markets in controlled movements. The central banks are capable of requesting aid from the governments to fight sudden implications, but of course the central bank is not required to act when the government requests certain actions from it. Also, the central banks must be independent from local politics and unbiased in their decision-making. These are core fundamentals that allow the central banks to operate in the most proficient manner possible.
In Kuwait however, the methods are different. During a year of record inflation parliament announces the highest spending budget in history, an increase in wages, demands decreasing the dicount rate, and finally the dissolution of consumer loans. The government’s actions were all created with the CBK’s direct objection proving that the government will not aid the CBK in preserving the economical well being of the country. The governments actions would prove catastrophic to the economy if left unabated therefore the CBK must act swiftly and alone to correct the government’s blunders.
Kuwaiti Dinar unchanged for days September 1, 2008
Posted by mylastresort in analysis.Tags: Central Bank of Kuwait, Chart, Dinar, Dollar, Dollar KD, Graph, KWD
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The Kuwaiti Banking System & Financial Structure June 24, 2008
Posted by mylastresort in analysis.Tags: ABK, Banking system, CBK, Central Bank of Kuwait, Chart 5, GBK, IBK, Invesment Bank, KIB, KREB, kuwait, NBK, QNB
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Kuwaiti Dinar at record strength against US Dollar May 25, 2008
Posted by mylastresort in analysis.Tags: Central Bank of Kuwait, Currencies, currency, forex, kuwait, Kuwaiti Dinar, KWD, Record, US Dollar, USD
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The Kuwaiti Dinar (KWD) has reached record strength against the US Dollar (USD) reaching .26490 fils per US $1.00 on Sunday.
CBK calling to free Kuwaiti land May 7, 2008
Posted by mylastresort in analysis.Tags: CBK, Central Bank of Kuwait, Free, Governer, inflation, kuwait, Land, Real Estate, SHEIKH SALEM Abdul-Aziz al-Sabah
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The central bank of Kuwait is urging the government to tackle record inflation by giving away more land
and resisting calls to boost spending since inflation levels jumped to a record of 9.5 percent in January, driven by a 16.1 percent rise in rents and 7.7. percent rise in food costs.
“Monetary tools alone won’t be able to curb inflation… This helps bring down prices of production of goods and providing of services… This helps in lowering the impact of severe fluctuations in prices of major international currencies on local inflation”
- Sheikh Salem Abdul-Aziz al-Sabah, Central Bank of Kuwait Governer
Inorder to lower inflation the government should provide more land, which is almost entirely owned by the state, to businesses and individuals. By permitting the sale of lands, not only will it control the surging inflation, but will also increase health care facilities, decrease road congestion, allow more housing, control prices of housing, among much, much more.
Future of Kuwait’s banking sector March 31, 2008
Posted by mylastresort in analysis, rumors.Tags: Ahli, Bank of Kuwait, Banking Sector, Banks, Burgan, CBK, Central Bank of Kuwait, Commercial, economy, Effects of politics, Government, Industrial, inflation, kuwait, Kuwaiti, Loans, National
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The Central Bank of Kuwait’s recent steps in an effort to reduce the money supply and eventually lower inflation will have severe consequenses on the local banking sector. To recap the following steps were taken by the CBK:
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Consumer loans cap will be 40% of salary, from 50%
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Pensioners loans’ cap to 30% of income
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A new limit on interest rates of 3% over discount rate, from 4%
The banking sector in general relies heavily on lending funds to consumers at high rates at long term intervals. The loan cap on potential customers will decrease the amounts banks can lend and along with the limits on the interest rate charged will lower returns on the already decreased amounts taken. This step in itself will lower the revenues’ for the banking sector which will be evident in the 2009 statements. My prediction is that, based on the new regulations, banks’ revenues will be between 20 -25% lower than last year. (more…)
