RIYADH/DUBAI, 11 May 2006— Shares tumbled across the Gulf Arab region yesterday as banks slashed their exposure to crashing stock markets that have wiped hundreds of billions of dollars off investors’ books.
Bankers in the United Arab Emirates said the central bank had asked them to report their exposure to the Abu Dhabi and Dubai markets, which have fallen 35 and 53 percent respectively this year as heavily leveraged investors scrambled for the exit.
Saudi Arabia’s central bank governor assured investors that banks in the Kingdom had not suffered from a slump that has slashed the capitalization of the Arab world’s largest bourse by around $400 billion since the end of February.
“Most banks have investments in the market. They also have exposure to the market through leveraging and indirect exposure through asset management and brokerage,” said Hany Hussein of Dubai-based Mashreqbank.
“We are seeing liquidation from banks and panic selling from retail (investors),” he said of yesterday’s trading in the UAE.
The Saudi Tadawul All-Share Index (TASI) index sank below 10,000 points for the first time since March 2005, before a late rally helped it close 4.94 percent down at 10,074.61 points.
Saudi banks which manage portfolios were selling blue chips to meet redemption orders from customers scrambling to get out of a market that has fallen 50 percent in less than three months. “
The Saudi crash ended a months-long rally fuelled by record oil prices that propelled Gulf bourses into the ranks of the world’s best performers last year, but also made them among the most expensive of markets.
The Saudi slump was triggered by a series of clashes between the regulator and speculators, although most analysts agree that the market was ripe for a fall, given its high valuations and heavily leveraged retail investors.
Saudi banks have lent heavily for stock-market investment and derive a large chunk of their revenue from brokerage and other market-related business. Some have also invested directly in the market.
But Saudi Arabian Monetary Agency Governor Hamad Al-Sayari said there was no cause for concern.
“The recent downturn in the stock market had no adverse impact, either on banks or on the financial system,” Al-Sayari told a conference in Riyadh.
In the United Arab Emirates, bankers said they had received a letter from the central bank asking for “information on all direct and indirect exposure” through investments, loans, or guarantees to investors. “The letter (was addressing) direct investments and leveraging portfolios,” said Hussein.
Earlier this year, the UAE central bank raised the ceiling for bank loans against shares to a maximum of 80 percent of their market value from 70 percent to ease pressure for margin calls that were pulling down the market.
UAE markets, like others in the world’s biggest oil exporting region took their cue from the Saudi morning session. Dubai finished 4.8 percent down at its lowest close since Feb. 24, last year.
Abu Dhabi’s index dropped 3.3 percent. Kuwait shares fell 1.2 percent, with confidence also hit by regional tension over Iran’s nuclear program and a domestic political dispute that has led to the resignation of the information minister.