Gulf economies need more regulation to strengthen the banking system and stave off a repeat of the financial crisis, regional bank chiefs said in Kuwait. "The promotion of financial stability is the duty of decision makers because it is evident that banks cannot be relied upon to do that," Mohammed al Jasser, the governor of Saudi Arabia's central bank, said at the Kuwait Financial Forum.
"In other words, self-supervision is no supervision." Mr al Jasser, who warned at the forum that the financial crisis was not over and that "despite positive signs" it was too early to start exiting stimulus packages, added that it was important to "intensify our efforts" to improve supervision. Lending in the Gulf boomed in recent years as oil prices rose, fuelling a massive expansion of credit that some observers worry may seed future bubbles and lead to a cycle of economic booms and busts. Loans and advances at UAE banks alone exceeded Dh1 trillion (US$272.25 billion) earlier this year, according to Central Bank data.
As countries across the region and around the world begin to craft exit strategies from stimulus packages put in place as a response to the financial crisis, adapting supervision of financial firms to better prepare for future crises has increasingly become a priority. Officials at the forum said central banks in the Gulf had generally been prudent with monetary policy and supervision of banks, which helped the region's financial system avoid the brunt of the financial crisis. But they said more could be done to put curbs on loans to people and companies that could not afford them.
"We are talking about acceptable regulations, not regulations that will suffocate us," said Ibrahim Dabdoub, the chief executive of the National Bank of Kuwait. Henry Azzam, the chief executive of the Middle East and North Africa for Deutsche Bank, said a region-wide regulatory body would help the Gulf better cope with systemic risks. The proposal for a super-regulator for banks has been floated in the past, but has been opposed by some officials who say that GCC countries ought to be allowed to determine how tightly they restrict lending. The proposal also took a hit with the withdrawal in May of the UAE from a planned Gulf currency union.
"We had systemic risks affecting most countries of the region," Mr Azzam said. "That's why it's important to create a regional regulatory body and a Gulf central bank with one currency." @Email:email@example.com