Doha Bank CEO says GCC economies relying on high oil prices

Seetharaman stresses US debt ceiling issue may roil global markets

ABU DHABI:

The US debt ceiling issue is one of the major challenges for the GCC banking industry in 2013, according to Dr Seetharaman, chief executive officer at Qatar-based Doha Bank.

“GCC capital markets are sensitive to both the oil price and developments in the US. A massive correction in capital markets can deprive the banking players of earnings through the investments,” said Seetharaman in an interview.

Seetharaman said the GCC economies’ fiscal budgets currently are based on an oil price at a minimum of $60 per barrel. “Presently, as the oil prices are at high level it has given opportunity for the GCC to build the current account surplus and fiscal surplus. Collapse of oil price from current high levels due to US debt ceiling issue can be withstood by GCC economies if the shocks in financial markets don’t prevail for a long time. However, GCC capital markets are sensitive to both the oil price and developments in US, Seetharaman cautioned. As matters stand, the US government is on track to hit the limit on how much it can borrow around May 19. The US Treasury can use emergency manoeuvres so the administration can continue to pay bills such as interest on its debt. But those measures are expected to run their course in July or August and Congress will have to raise the ceiling again or risk a damaging debt default.

The run-up to a deal on raising the $16.4 trillion US debt ceiling won’t be easy as Republicans say they are preparing to use the next debt limit deadline to fight for further spending cuts and major changes to federal healthcare and retirement programmes. In what appears to be a protracted fight, the global markets are almost certain to get roiled before a deal is reached, feel experts. Seetharaman said the GCC bond yields also rise to US sovereign concerns and can impact the bond book. “The liquidity in the interbank money market can also get dried up resulting in rise in yields and strain in the financial system. Currently, the low interest margins puts pressure on GCC banking sector profitability that are looking for other sources of income, namely investment and forex income to improve their bottom-line,” Seetharaman said, adding the collapse of financial markets will deprive the banking sector of these sources of income. “If no resolution is arrived (with regard to raising the US debt ceiling), and the drying of liquidity in financial markets prevails, it can impact the growth of GCC economies and the performance of GCC banks.”