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Gulf economies remain immune to credit crisis

By Staff Writer Published: 2008-03-27T07:12:39+04:00

 

 
High economic growth, low inflation, massive current and financial account surplus, buoyancy in domestic markets and the recycling of petrodollars in the local markets has meant that the Gulf region has remained more or less immune to the global credit crisis, according to Kuwait-based investment bank Global Investment House (GIH).


“The [GCC] economies are expected to exhibit significant resilience in the face of a slowdown in the advanced world and are expected to continue witnessing the recent trend of high economic growth,” the bank said in a report.

According to GIH’s analysts, the globalisation of markets has meant all regions tend to get affected. However the impact is much less on the Gulf economies because of the robust investments.

Total assets of the GCC banks were expected to be around $287 billion (Dh1.05 trillion) at the end of 2007 and only three prominent banks - Arab Banking Corp, Gulf Investment Corp and Gulf International Bank - lost a combined $1.5bn from the sub-prime crisis, it said.

The report said GCC banks’ investments in hedge funds are relatively limited and hence the impact on banks’ profitability is likely to be muted.

“Apart from that majority of Islamic banks in the region that conduct banking business on the tenets of Islam are restricted from investing in such type of structured products resulting in lower exposure to the sub-prime segment,” it said.

The global issuance of sub-prime mortgages gained momentum rising from $213bn in 2002 to more than $700bn by 2006, the report said. The sub-prime mortgages had a market share of around 20 per cent of all mortgages in 2006 – their highest share in history.

The number rose to  $1.3 trillion as of March 2007. But these mortgages had a much higher rate of repossession than conventional mortgages because they were adjustable rate mortgages. “The payments were fixed for two years, and then became both higher and dependent on the level of Fed interest rates.