Standard Chartered has warned that credit markets in the Gulf could undergo a "major sell-off" if Greece abandons the euro, as world markets lurched through further choppy trading sessions and the troubled European currency fell further.
The London-based bank, which generates most of its income in Asia, Africa and the Middle East, said Greece returning to the drachma would lead many emerging market indexes to fall further, even though the threat of a divorce from the euro zone has already rattled markets for many months.
"For the Asian and Gulf Cooperation Council [GCC] credit markets, we would expect a major sell-off in the event of a Greek exit from the euro area," the bank said in a research report.
"A Greek exit from the euro area is likely to see emerging-market equities retest the valuation lows reached at the time of the Lehman bankruptcy, at least in the short term."
Greece's future in the euro zone, along with its €130 billion (Dh594.2bn) bailout from the IMF and the European Union, have been thrown into doubt after elections this month failed to produce a government.
New elections are set for June 17, with some opinion polls showing a reversal of earlier support for parties opposed to widely unpopular austerity measures.
The euro fell to a two-year low in trading yesterday, losing as much as 0.8 per cent against the dollar to $1.2424, a level not seen since July 2010.
But the biggest impact for the Gulf of a Greek euro exit would be on Asian economic output and the demand for oil, Standard Chartered added.
"The GCC's external revenues depend on Asia now; the biggest risk would come from a collapse in oil demand and prices, and debt financing would also suffer," the report said.
The price of crude has plunged since Greece's inconclusive election on May 6. Brent crude futures have fallen $7.57 to $106.04 per barrel since then, while Nymex crude has lost $7.73 to $90.76, an eight-month low for the American benchmark.
The euro-zone sovereign debt crisis has sparked a withdrawal of European bank lending lines from the Gulf, as banks seek to shore up their capital buffers against a looming tide of bad debts expected if Greece is forced out of the euro.
"Tight credit has been prevalent in the region in the past few years, and a more acute shortage of bank liquidity would cause credit to tighten even further, both for the households and for corporates and sovereigns wanting to tap debt instruments," the report added.
Bank lending in the UAE ground to a halt during the first three months of this year, with banks able to grow their loan books only through lending to arms of government.
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