By Sumayyah Meehan, MMNS
Vans line up at Gulf Bank to deliver money to the bank branches.
Photo Courtesy www.248am.com.
When news of the U.S. bailout hit the Middle East newswire, the snickering could most likely have been heard halfway around the World. There is no love lost between the U.S. and most Gulf States as the mass majority of Gulf residents view the U.S. as an aggressor and not the liberator they claim to be. However, no one is laughing now as the very first casualty of the World economic crisis, stemming directly from the U.S. bailout, has fallen right in the State of Kuwait, which is sure to send shockwaves to neighboring GCC nations.
One of the most prestigious and trusted financial institutions in Kuwait, Gulf Bank, had to be bailed out by the Kuwaiti government this past week. As Kuwaitâ€™s second largest lender, Gulf Bank suffered losses as a result of trading in oil derivatives and itsâ€™ own investors refused to help settle those losses. The Central Bank of Kuwait (CBK) has stepped in and is quoted as saying it, â€œbacks the bank and fully guarantees its deposits.â€ The CBK also halted trading by Gulf Bank in the Kuwait Stock Exchange and sent itsâ€™ own surpervisors to deal with risk management. Bank records will be closely scrutinized to determine the scale of the risks the bank took without the knowledge of the CBK.
From the moment the news broke in this tiny Gulf nation, jittery Gulf Bank customers raced to the nearest ATMâ€™s, local branches and even online to immediately withdraw the full balances from their accounts. All of the branches were swarmed with panic-stricken customers and rioting nearly broke out at one of those branches. By the mid-morning of the first day it is estimated that over $100 million US dollars was withdrawn. By the second day, rumors were rife that the all the Gulf Bank branches were under lockdown and customers were being limited as to how much they could withdraw from the ATM machines.
However, to hear Gulf Banks version of the events over the past few days, one might feel like theyâ€™ve entered the â€˜Twilight Zoneâ€™. According to General Manager for Board Affairs Fawzy Al-Thunayan the reason for so many customers descending on the branches of the bank is because, â€œItâ€™s the time of salaries … Itâ€™s the end of the month.â€ Al-Thunayan also denied that money from CBK is being pumped into his bank despite reports of several armored vehicles being spotted lined up at many of the main branches.
Weighing in on the turmoil facing Gulf Bank, an employee of one of their main rivals National Bank of Kuwait (NBK) had this to say, â€œOur bank has been in business since 1952 and we know how to handle our clientâ€™s money. If Gulf Bank is having problems, small investors have the right to withdraw their money and look for other banking options.â€ As the largest lender, by assets, its not surprising that former Gulf Bank customers have been flooding NBK to open up new accounts.
So far Gulf Bank is the first ever Kuwaiti bank to buckle under the pressure of an increasingly uncertain global economy. Other banks in Kuwait are discussing ways to safeguard themselves from falling into a similar situation. A local Arabic daily newspaper has reported that at least four proposals for mergers between Kuwaiti banks have been received by the CBK. By merging into a larger entity, banks can best weather the current economic firestorm.
While Kuwait is the first country to see the demise of one of itsâ€™ banks up close and personal, it is not the first country to guarantee bank deposits. The UAE took the preventative measure of calming down itsâ€™ investors and clients by guaranteeing all deposits in the first quarter of October 2008.