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Saturday 18 September 2021
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GCC states insulated against Greek contagion

Gulf oil producers appear to be more insulated from Greece’s financial troubles than other Arab countries while their banks have sufficient funds to deal with any exposure, a French bank said .

Credit Agricole said the crisis would also have little impact on tourism in Dubai, one of the region’s most attractive destinations for European travellers, on the grounds it could offer lower prices as incentives.

But the bank cautioned that a sharp decline in oil prices would have a major impact on growth in the GCC as it would prompt Organisation of the Petroleum Exporting Countries (Opec) to cut output and this would depress growth in the region.

It also said GCC equity markets could also be impacted by the crisis if Greece’s woes spread into other EU members.

“While European policymakers and the International Monetary fund (IMF) have hammered out a loan package of almost $1 trillion (Dh3.67trn) designed to dodge a potentially scathing and wide-reaching sovereign debt crisis, the ripple effect of debt troubles in Europe is unlikely to disappear in the coming months,” Credit Agricole said in a five-page study, authored by John Sfakiankis, Chief Economist at Banque Saudi Fransi.

“In the short term, GCC states are more insulated from any European deleveraging than other Middle East countries, such as those in North Africa. Gulf banks’ exposure to Europe is contained and provides little systemic risk. Still, any precipitous and sustained price drop in commodities such as oil or global equities would not bypass the Gulf,” said the study, sent to Emirates Business.

Sfakiankis, one of the best-known economists in the region and a former IMF expert, said he was not worried about GCC bank exposure to the European Union while most of the acquisitions of the region’s sovereign wealth funds have largely taken place based mainly on equity.

“In terms of bank risk, we are not particularly concerned about absolute banking exposures of Gulf lenders to Europe,” he said. “On the other hand, BIS data of Q4 2009 shows European lenders have around $174bn of Gulf exposure, US banks $4bn and UK banks $83bn.”

Out of the total exposure of European, UK and US cross-border banking exposure in the Gulf, half is with the UAE, 16 per cent with Saudi Arabia and 17 per cent Qatar, according to Sfakiankis.

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