Friday, October 17, 2008

UAE Issues Guaranty--Will Other Gulf States Follow Suit?

Sources: Gulf States Urged to Act Collectively, Financial Times; UAE Ministry Offers Further Liquidity, Financial Times; UAE Extends Deposit Guarantee to Foreign Banks, International Herald Tribune

Due to the signs of escalating stresses on the banking system, the UAE central bank issued a guarantee of all credit risks, deposits, savings, and inter-bank lending in the country. The UAE recently announced that it would extend this guarantee to foreign banks operating in the country. It also pledged to inject a further $19 billion of liquidity to domestic banks.

Analysts claim that the move was proactive and intended to reassure investors. The state’s cabinet issued a statement stating that authorities will “provide all required guarantees to support the banking sector in the UAE and to protect it from the global financial crisis.”

Although Saudi Arabia, Kuwait, and Qatar have all moved to support their banking sectors through providing extra liquidity, this move by the UAE has put pressure on the surrounding Gulf states to also make guarantees. Many analysts say that a collective action by the Gulf states would boost confidence in the region for both domestic and foreign investors. This may also be a positive step in the direction of forming a monetary union amongst the states, which is slated to happen by 2010.

Discussion: Do you think that other Gulf states will follow the UAE’s lead? Are you surprised that the UAE extended its guarantee to include foreign banks operating within its borders? Will these moves help shield their booming financial industry from the credit crisis, or will they be forced to do more?

2 comments:

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