Banks are banking with each other again. That's the best news we've had in weeks. The so-called interbank market appears to be reviving, as measured by the rate banks charge each other to borrow money.
The interbank market is a complex world filled with strange-sounding names that you'd expect to encounter in an old monster film - Godzilla v Eibor, son of Libor. Suffice to say that if banks don't trust each other, they generally don't trust companies.
And if companies can't borrow for short periods of time to pay for supplies and whatnot, they can go bust even when business is good.
Outside the Gulf and some emerging markets, business is not so good. The US, the Godzilla of global economies, is heading into what looks to be a grinding recession that will send shock waves around the world.
According to the latest statistics, 6.1 per cent of America's working population is unemployed. The price of the average American home dropped 16 per cent in July. Foreclosures rose in the second quarter at the fastest pace in nearly 30 years.
US economist Nouriel Roubini, whose bearish predictions on the US economy have turned out to be eerily prophetic, is now predicting a global recession, with losses to financial institutions exceeding US$3 trillion (Dh11.02 trillion). So far, we're only up to $637 billion in reported losses, which may provide some inkling of how much pain we're still in for.
Because of this, the western financial system is now being partially nationalised. The terms vary, but essentially Europe, the UK and the US are using taxpayers' money to buy up huge chunks of their respective banking systems to keep them alive. For taxpayers, the upside is that pay cheques will continue to arrive and the corner ATM will continue to spit out cash.
Here's what this means for the Gulf: oil prices have fallen to below $75 a barrel, back to where they were a year ago. Economists estimate that lower prices could put Bahrain and Oman's governments into deficit, meaning they will have to borrow money or dip into their assets to keep spending as planned.
Here in the UAE, though, the Government has a lot more wiggle-room. Oil prices would have to fall to about $31 a barrel before it had to dip into its purse.
In the meantime, Abu Dhabi is still funnelling surplus oil revenues to the Abu Dhabi Investment Authority, the Abu Dhabi Investment Council, the International Petroleum Investment Company and Mubadala Development Company. They now face the unenviable task of trying to find ways to invest that money profitably in today's markets.
On paper, banks in the UAE also remain in good shape, even if it doesn't feel like it to the bankers. The flight of foreign funds out of the UAE over the past few months has created a shortage of cash for lending. Domestic deposits, which still account for the lion's share of bank deposits, aren't growing fast enough to make up for the shortfall.
This needs to be put in perspective. The stress in the UAE banking scene is nothing compared to what we've seen overseas. Economists and bankers say some decline in property prices and lending would actually be a good thing for the country.
Already, uncertainty about the longevity of the property boom is prompting developers to shift their marketing from uber-luxury down towards mere mortals, addressing an affordability crisis in housing. And Central Bank officials can only be breathing a sigh of relief that higher interbank rates have cooled what was once runaway lending growth.
Still, it doesn't do the UAE any good if funding dries up entirely. There are justified concerns about the ability of local companies to refinance debts in such a tight funding environment. Doubts also persist about just how badly banks might be affected if and when property prices decline.
The Central Bank and Government have stepped in to head off trouble, first by offering to lend banks Dh50bn in cash if they need it and then by guaranteeing deposits and interbank lending.
Now the Government is readying an additional Dh70bn to inject into the banking system, though it hasn't yet said precisely how. Economists and bankers say that one way might be simply to raise the amount of money the government keeps deposited at local banks.
Others say a more efficient way to increase the amount of funds available for lending would be to lower the reserve requirement - the amount the Central Bank requires banks to keep deposited with it. The Central Bank could also offer banks longer-term, low-cost loans, they say.
Few, however, think the UAE should follow the US, UK and Europe by buying more shares of the country's banks. Most banks still have ample capital, they say, and most are already owned to some extent by the government. The National Bank of Abu Dhabi and Emirates NBD, for example, are both majority-owned by state entities. The only large, private banks are Mashreq and First Gulf Bank.
But there are some who think that raising the Government's stake in UAE banks might not be such a bad idea. Qatar announced this week that its sovereign wealth fund, the Qatar Investment Authority, will buy up to 20 per cent of the country's banks on the local stock market.
Using national savings to prop up bank shares might not be the best way for the UAE to go about it, analysts say. Instead, the Government might be better off following the US example, buying preferred shares that pay an interest rate and give the Government the right to convert them into common shares that it can sell for a profit.
That gives banks an incentive to perform well enough to raise private capital and buy the Government out.
Given that the UAE's economy is projected to continue growing despite the global slowdown, the odds may be good that such a deal would pay off. It could provide a way to dispel lingering doubts about the health of banks without putting them under Government control. Most importantly, it would ensure that the banks can keep the economy rolling until the rest of the world recovers.
warnold@thenational.ae
A MINECRAFT MOVIE
Director: Jared Hess
Starring: Jack Black, Jennifer Coolidge, Jason Momoa
Rating: 3/5
COMPANY PROFILE
Name: Kumulus Water
Started: 2021
Founders: Iheb Triki and Mohamed Ali Abid
Based: Tunisia
Sector: Water technology
Number of staff: 22
Investment raised: $4 million
Famous left-handers
- Marie Curie
- Jimi Hendrix
- Leonardo Di Vinci
- David Bowie
- Paul McCartney
- Albert Einstein
- Jack the Ripper
- Barack Obama
- Helen Keller
- Joan of Arc
Cryopreservation: A timeline
- Keyhole surgery under general anaesthetic
- Ovarian tissue surgically removed
- Tissue processed in a high-tech facility
- Tissue re-implanted at a time of the patient’s choosing
- Full hormone production regained within 4-6 months
The specs
Engine: 3.0-litre 6-cyl turbo
Power: 435hp at 5,900rpm
Torque: 520Nm at 1,800-5,500rpm
Transmission: 9-speed auto
Price: from Dh498,542
On sale: now
Skewed figures
In the village of Mevagissey in southwest England the housing stock has doubled in the last century while the number of residents is half the historic high. The village's Neighbourhood Development Plan states that 26% of homes are holiday retreats. Prices are high, averaging around £300,000, £50,000 more than the Cornish average of £250,000. The local average wage is £15,458.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
At a glance
Global events: Much of the UK’s economic woes were blamed on “increased global uncertainty”, which can be interpreted as the economic impact of the Ukraine war and the uncertainty over Donald Trump’s tariffs.
Growth forecasts: Cut for 2025 from 2 per cent to 1 per cent. The OBR watchdog also estimated inflation will average 3.2 per cent this year
Welfare: Universal credit health element cut by 50 per cent and frozen for new claimants, building on cuts to the disability and incapacity bill set out earlier this month
Spending cuts: Overall day-to day-spending across government cut by £6.1bn in 2029-30
Tax evasion: Steps to crack down on tax evasion to raise “£6.5bn per year” for the public purse
Defence: New high-tech weaponry, upgrading HM Naval Base in Portsmouth
Housing: Housebuilding to reach its highest in 40 years, with planning reforms helping generate an extra £3.4bn for public finances
F1 drivers' standings
1. Lewis Hamilton, Mercedes 281
2. Sebastian Vettel, Ferrari 247
3. Valtteri Bottas, Mercedes 222
4. Daniel Ricciardo, Red Bull 177
5. Kimi Raikkonen, Ferrari 138
6. Max Verstappen, Red Bull 93
7. Sergio Perez, Force India 86
8. Esteban Ocon, Force India 56
How much sugar is in chocolate Easter eggs?
- The 169g Crunchie egg has 15.9g of sugar per 25g serving, working out at around 107g of sugar per egg
- The 190g Maltesers Teasers egg contains 58g of sugar per 100g for the egg and 19.6g of sugar in each of the two Teasers bars that come with it
- The 188g Smarties egg has 113g of sugar per egg and 22.8g in the tube of Smarties it contains
- The Milky Bar white chocolate Egg Hunt Pack contains eight eggs at 7.7g of sugar per egg
- The Cadbury Creme Egg contains 26g of sugar per 40g egg
The smuggler
Eldarir had arrived at JFK in January 2020 with three suitcases, containing goods he valued at $300, when he was directed to a search area.
Officers found 41 gold artefacts among the bags, including amulets from a funerary set which prepared the deceased for the afterlife.
Also found was a cartouche of a Ptolemaic king on a relief that was originally part of a royal building or temple.
The largest single group of items found in Eldarir’s cases were 400 shabtis, or figurines.
Khouli conviction
Khouli smuggled items into the US by making false declarations to customs about the country of origin and value of the items.
According to Immigration and Customs Enforcement, he provided “false provenances which stated that [two] Egyptian antiquities were part of a collection assembled by Khouli's father in Israel in the 1960s” when in fact “Khouli acquired the Egyptian antiquities from other dealers”.
He was sentenced to one year of probation, six months of home confinement and 200 hours of community service in 2012 after admitting buying and smuggling Egyptian antiquities, including coffins, funerary boats and limestone figures.
For sale
A number of other items said to come from the collection of Ezeldeen Taha Eldarir are currently or recently for sale.
Their provenance is described in near identical terms as the British Museum shabti: bought from Salahaddin Sirmali, "authenticated and appraised" by Hossen Rashed, then imported to the US in 1948.
- An Egyptian Mummy mask dating from 700BC-30BC, is on offer for £11,807 ($15,275) online by a seller in Mexico
- A coffin lid dating back to 664BC-332BC was offered for sale by a Colorado-based art dealer, with a starting price of $65,000
- A shabti that was on sale through a Chicago-based coin dealer, dating from 1567BC-1085BC, is up for $1,950
MORE ON IRAN'S PROXY WARS
Banned items
Dubai Police has also issued a list of banned items at the ground on Sunday. These include:
-
-
-
-
-
-
-
-
-
Political flags or banners
-
Bikes, skateboards or scooters
Director: Laxman Utekar
Cast: Vicky Kaushal, Akshaye Khanna, Diana Penty, Vineet Kumar Singh, Rashmika Mandanna
Rating: 1/5
COMPANY PROFILE
Founders: Alhaan Ahmed, Alyina Ahmed and Maximo Tettamanzi
Total funding: Self funded
In numbers: PKK’s money network in Europe
Germany: PKK collectors typically bring in $18 million in cash a year – amount has trebled since 2010
Revolutionary tax: Investigators say about $2 million a year raised from ‘tax collection’ around Marseille
Extortion: Gunman convicted in 2023 of demanding $10,000 from Kurdish businessman in Stockholm
Drug trade: PKK income claimed by Turkish anti-drugs force in 2024 to be as high as $500 million a year
Denmark: PKK one of two terrorist groups along with Iranian separatists ASMLA to raise “two-digit million amounts”
Contributions: Hundreds of euros expected from typical Kurdish families and thousands from business owners
TV channel: Kurdish Roj TV accounts frozen and went bankrupt after Denmark fined it more than $1 million over PKK links in 2013
The White Lotus: Season three
Creator: Mike White
Starring: Walton Goggins, Jason Isaacs, Natasha Rothwell
Rating: 4.5/5
Test
Director: S Sashikanth
Cast: Nayanthara, Siddharth, Meera Jasmine, R Madhavan
Star rating: 2/5
more from Janine di Giovanni
How to watch Ireland v Pakistan in UAE
When: The one-off Test starts on Friday, May 11
What time: Each day’s play is scheduled to start at 2pm UAE time.
TV: The match will be broadcast on OSN Sports Cricket HD. Subscribers to the channel can also stream the action live on OSN Play.