The crisis in Kuwait??s banking sector deepened on Tuesday as the chairman of Gulf Bank resigned over derivatives losses and Moody??s warned it could downgrade the bank. Kutayba Al Ghanim replaced his brother Bassam Al Ghanim as chairman of Gulf Bank after depositors on Monday started to withdraw deposits from the stricken bank. It was the first known bank run in the region during the crisis and came despite the Kuwaiti central bank??s pledge to support the bank and guarantee all bank deposits in the country.
Gulf Bank said on Sunday it had made an undisclosed loss on trading currency derivatives for a client, who subsequently refused to honour their commitments. Kuwaiti bankers estimate the loss at up to $800m. The loss ??raises questions as to whether the underlying risks assumed by customers, and by extension by the bank, were properly identified and managed,? Moody??s said in an emailed statement.
The losses on currency derivatives came after the euro declined against the dollar, according to Gulf Bank, which said it would cover the costs until it can work out an agreement with its clients.
Despite robust public finances and current account surpluses, signs are mounting that the Gulf is far from immune to the storm sweeping financial markets. Abu Dhabi Commercial Bank in the United Arab Emirates and Gulf International Bank and Arab Banking Corporation in Bahrain last year reported writedowns on US investments.
Few other institutions have admitted to subprime losses, but many have started to take mark-to-market losses on investment portfolios due to plunging regional and international equities. The MSCI Gulf index has lost nearly half its value this year.
