Doha Bank CEO says GCC economies re­ly­ing on high oil prices

Seethara­man stresses US debt ceil­ing is­sue may roil global mar­kets

The Pak Banker - - FRONT PAGE -

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.”

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