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.
Kuwait inflation in double digits August 31, 2008
Posted by mylastresort in analysis.Tags: banking, CBK, Central Bank, CPI, Econony, inflation, kuwait, National Bank of Kuwait, NBK, Reseach
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Kuwaits year-on-year inflation will remain in double digits despite governments plans and Central Bank intervention. The Central Bank of Kuwait (CBK) clamped down on credit and money growth in a bid to drain excess cashflow resulting from high oil revenues. In January CBK Governor Sheikh Salem Abdulaziz AlSabah warned that high inflation constituted a “national challenge” for the oil-rich emirate.
“Inflation should ease as a result of slower economic growth, lower commodity prices, months of tighter money” [and the dinars appreciation against the dollar]
- National Bank of Kuwait
For the past 4 weeks local banks were suffering from a liquidity crisis pushing rates higher for short term deposits. The currency has appreciated 9% since the government dropped the dinars peg to the US currency in May of 2007. Inflation rose to double digits in February (for the first time) to reach a staggering 10.14%, then dropped slightly in March to 10.1%, lastly hitting 11.1% in May.
“NBK expects to see year-on-year CPI [Consumer Price Index] rates in the seven to eight per cent range from now to year-end and that would put 2008 inflation at 10 per cent for the year, compared to 5.5 per cent in 2007″
- National Bank of Kuwait
A report released by National Bank of Kuwait (NBK) said it expects a slight drop in inflation figures for the rest of the year on the back of falling world food and commodity prices. The report expected a sharp rise in prices in September during the holy month of Ramadan.
Gulf Countries Delay Currency Union June 10, 2008
Posted by mylastresort in analysis, bahrain, qatar, saudi arabia.Tags: Central Bank, Currency Union, gcc, Gulf, Gulf Cooperation Council, Single currency
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Central bank governors from the Gulf Cooperation Council (GCC) agreed to form the nucleus of a joint central bank by 2010 in a major step forward for monetary union but signalled that the new common currency would be delayed (as explained in previous posts) and not launched by the 2010 target.
Record-high inflation in all the countries in the GCC is threatening to derail the project. Central bank governors from the GCC laid out a roadmap leading toward common monetary institutions before 2010. It seems very optimistic that with all the economic dilemma’s we are facing the Gulf the central banks still believed that we could form the single currencyCurreny Union by 2010.
Investment Dar to Sell Cham Bank June 3, 2008
Posted by mylastresort in analysis.Tags: banking, Central Bank, Cham Bank, Commercial Bank of Kuwait, investment, Investment Dar, Syria
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As previously reported as a rumor but now confirmed, Investment Dar has agreed with Commercial Bank of Kuwait (CBK) to sell its 12.5% stake in Syrian lender Cham Bank for $7 million. The deal was done but still pending approval by the Central Banks of Kuwait and Syria.
Interesting Notes from previous posts:
- In the previous unsourced statement Dar Investment was was said to gain KD 2 million on the sale
- Commercial bank of Kuwait showed intent of raising its stake in Cham bank to 30% from 10%
- CBK has raised its stake to 27%, this year, buy purchasing shares from Syrian & Kuwaiti investors
Kuwait: Record inflation level April 8, 2008
Posted by mylastresort in analysis.Tags: analysis, Central Bank, CPI, Data, December, inflation, kuwait, news, Record
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The annual consumer inflation in Kuwait has just been reported at 7.54% in December 2007. Government data shows that the Consumer Price Index (CPI) rose to 124.1 points at December 31, compared with 115.4 a year earlier.
Last three inflation figures were as follows (chronological):
- October 7.26% (previous record)
- November 6.68%
- December 7.54% (New Record)
Final day of Gulf Arab meetings April 7, 2008
Posted by mylastresort in analysis, bahrain, qatar, saudi arabia.Tags: Abdullah bin Saud al-Thani, Central Bank, currency, Dinar, Dirham, Doha, gcc, Governors, kuwait, Meeting, qatar, Riyal, saudi arabia, Single, uae, Union
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Since today is the last day of the highly anticipated meeting of the Gulf Arab states many rumors have risen as to the future of the currency union of 2010. The meeting will conclude today in the Qatari capital of Doha. A statement by Sheikh Abdullah bin Saud al-Thani reiterated the Gulf’s commitment to a single currency, the same optimism is shared with all the member countries.
“There are plans by all competent institutions in the GCC to achieve that goal by that date… We set 2010 for the monetary union and we are still sticking to this date.”
- Sultan Nasser al-Suweidi, The United Arab Emirates central bank governor
Rumors that the Qatari Riyal and the UAE Dirham would be revalued were obviously dismissed by the governors” at the meeting. Any slight indication of a revaluation from the governors will spark a mass speculative attack on the currency forcing the central banks to reform. (more…)
Gulf central bankers to discuss revaluation April 3, 2008
Posted by mylastresort in bahrain, qatar, saudi arabia.Tags: Arab Gulf, bahrain, Bank, Central Bank, Doha, Governers, Gulf, inflation, kuwait, Meeting, oman, qatar, Revaluation, Revalue, uae, United Arab Emirates, US Dollar
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On April 6 and 7 Gulf central bank governers plan to meet to discuss removing obstacles to planned monetary union at a meeting in Doha, Qatar. The Gulf countries are under pressure to revalue in the quickest time to minimize effects on their economies. The countries are planning a joint revaluation against the dollar in an effort not to hinder plans for a single currency in 2010.
The implementation of new regulations along with discussions into the depegging. Weak Gulf currencies are dettering foreign labor from choosing jobs in the region. Recently foreign workers called a strike to demand higher wages as inflation soars.
“The meeting will look into the matter of preparing for monetary union between states of the Gulf Cooperation Council, and ways to speed up performance and remove obstacles”
- Central bank of Kuwait statement
The 6 Arab gulf countries will be meeting to discuss the revaluation of their currencies against the US Dollar, amid soaring inflation and falling interest rates.
KD 140,000 dilemma – Real Estate April 3, 2008
Posted by mylastresort in analysis.Tags: Banks, Central Bank, Companies, construction, Government, Ijara, kuwait, Land, Law, Parliament, Prices, Real Estate, Recent, Regulation
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The price of real estate in Kuwait had risen to ridiculous levels. Inflation in the country had risen to 6.7% in November ‘based on a 12.6% jump in housing’. A new law passed by Parliament prohibited banks and real estate companies from investing in residential real estate. Then a series of regulations passed by the central bank of Kuwait minimized the loans citizens could take to purchase homes. Real estate in Kuwait fell 20% – 40% in some areas.
CBK lowers consumer loans cap March 25, 2008
Posted by mylastresort in analysis.Tags: Bad Debt, Bankingm Pension, Banks, Cap, Caps, Central Bank, Consumer Loans, Interest Rates, kuwait, Personal Loans
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The Central Bank of Kuwait announced it is reducing the cap on consumer loans to 40%, from 50%. The new rule will allow retail banks to lend upto 40% of a customer’s salary. Also introduced is a plan for pensioners’ loans cap at 30% of their income. The Central Bank also decided that it will limit interest rates to 3% above discount rate, rather than 4%. These steps are aimed at reducing the money supply in the market. It is believed that these steps are in an attempt to lower inflation in Kuwait, which is at record highs.
The new Central Bank decisions will effect retail banks by decreasing the amounts that could be lent to consumers while lowering returns on the loans given. The impact of the new regulations on the local banks will be decreased profits in the future and, along with the lawsuits, maybe even losses before end of year.
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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%
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Kuwaiti’s owe more than KD 4 billion in personal loans
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These rules do not apply to foreign banks
