Banks in Qatar will be ‘relatively unaffected’ by Dubai’s debt crisis given the country’s track record in the ‘apt handling’ of the economy, veteran Scottish banker John R Wright has said.

“The Government of Qatar has already demonstrated its willingness and ability to step in and assist over the past year or so. I don’t think the situation has changed in Qatar,” he told Gulf Times.

Following the global economic downturn, Qatar took measures aimed at safeguarding the country’s key financial system. In three stages, the government ensured the local banks would not face a liquidity crunch. The bailouts began in October last year when the government decided to invest in new shares of the capital of the Qatari banks.

This was followed by a decision to acquire Qatari banks’ portfolio of local shares listed on the bourse at their book value in the banks’ accounts at the end of February. Subsequently, the government offered in May to buy Qatari banks’ real estate assets at a sale price equivalent to the net value of property loans and investments.

However, Wright is not ‘very bullish’ about banks in Dubai. “Banks in Dubai, I suspect, will experience great difficulty in the international interbank market as liquidity there will dry up,” said Wright, a former CEO of Oman International Bank and Gulf Bank, Kuwait.

He said there is little doubt the reputation of ‘Dubai Inc’ has take a massive hit because of the current debt crisis. “In my view the banks in Abu Dhabi will be affected to the extent they have underwritten Dubai obligations but the government there is well able to provide support. Banks in Oman and Bahrain and elsewhere in the GCC will be quite insulated from this problem in Dubai,” Glasgow-based Wright said.

Gulf banks must limit their exposure to the property sector as there is considerable chance for a real estate slowdown, he said. “When you have an explosive growth in property development, you will always have a major adjustment. It is inevitable. It is as sure as night follows day,” Wright said.

Generally, he said, the Dubai ‘debt repayment postponement’ will not be helpful to any bank in the region as lenders and counterparties are already ‘nervous’ and this ‘just makes things worse’. “The way it was handled was sub optimal and served to create further uncertainty, which the markets hate,” he said.

In his opinion there will be little effect on ‘ordinary people’ in the region outside Dubai on account of the emirate’s debt crisis. Interest rates, which are driven by broad international trends, will be ‘unaffected’.
However it cannot be good for people working in Dubai who have already experienced the sharp edge of recession. It might take quite some time before confidence is rebuilt and business gets back to some kind of normality, he said.

“The lessons to be learned are not unique. We have seen asset bubbles over many years in different markets. They always end in periods of sharp and painful adjustment. However, it is very important that we have strong regulations from the central banks and a much higher level of transparency than what we have seen so far,” Wright said.
‘Govt caution helps’
The “cautious and conservative” pattern of economic growth in Qatar will help the country steer through the fallout of the debt crisis afflicting Dubai, according to Qatar Chamber of Commerce and Industry chairman Sheikh Khalifa bin Mohamed bin Jassim al-Thani.

Qatar had achieved an economic growth of 16% last year on the strength of expansion of oil and natural gas projects, a local Arabic daily quoted him as saying.
QCCI deputy chairman Abdul Aziz al-Emadi said Qatar’s government is always on the alert and well prepared to deal with such risks. Qatar’s investments in Dubai are not very high, he said.

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