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03 December 2023

Middle East banks cut dollar exposure ahead of rate cut

By Staff Writer



Middle East banks are reducing their exposure to the US dollar ahead of an anticipated US rate cut in March, a top banking official said. The region’s “banks are reducing their short-term forex exposure ahead of a rate decision”, R Seetharaman, Chief Executive of Qatar’s Doha Bank said.


“You will see an increase in investments in commodities and long-term bonds,” he said. Oil and gold prices continue to hover near record highs as investors seek sanctuary from a weakening dollar amid persistent fears of a US recession.


The dollar also fell to a fresh record low against the euro earlier this week driven by concerns of further US rate cuts.

US Federal Reserve Chairman Ben Bernanke had told Congress last week that weak US economic growth may prompt the central bank to cut interest rates further to ward off a severe downturn.
“Ahead of a rate cut next month banks here are trying to lend cash across the curve,” said Marco Dondi, head of treasury and financial markets at Bahrain’s Al Salam Bank.


Gulf states peg their currencies to the US dollar and follow the US Fed in their monetary policies. They had all cut rates last month after a surprise US rate cut.

Banks in the Gulf have been forced to write down an additional $1.5bn in mortgage related losses as the extent of region’s exposure to the sub-prime crisis becomes more apparent, the Middle East Economic Digest (Meed) reported earlier.


Gulf International Bank (GIB) was the worst hit in the region, taking $1bn (Dh3.6bn) in provisions to match the massive write-down incurred as a result to exposure to risky, mortgage-related assets.


Arab Banking Corporation and Gulf Investment also took additional provisions of $230 million and $246m respectively to cover losses related to sub-prime.

The three banks losses constitute three-quarters of the total write-downs in the region attributable to mortgage assets.