The chairman of Gulf Bank, Kuwait's second biggest lender, resigned on Tuesday after the finance house suffered losses from derivatives deals, in the first such case in the oil-rich Gulf region. The news emerged as the Kuwaiti government approved a bill to guarantee deposits in local banks, amid continued investor jitters about the emirate's financial system which have sent stocks plunging.
"The board of directors held an emergency meeting on Tuesday during which it accepted the resignation of Bassam al-Ghanem as chairman and board member," the official KUNA news agency said, quoting a statement. Gulf Bank appointed Ghanem's brother Qutaiba al-Ghanem as the new chairman and also accepted the resignation of board member Abdulkareem al-Saeed.
The new chairman immediately announced the bank has abolished all trades in "derivatives and options," and said the main shareholders are prepared to inject any amount of liquidity needed by the bank. "We have more liquidity than we need. The bank plans to continue working as normal," Ghanem told a crowded news conference at the bank's headquarters. He said the bank has paid part of the losses to the international market, but declined to provide any figures.
"We paid (some) and are still paying... We are in the process of calculating the losses," he said. Tuesday's moves came after the central bank of Kuwait said on Sunday that Gulf Bank had incurred unspecified losses in derivatives deals on behalf of some clients who defaulted.
Kuwait's central bank appointed a supervisor to oversee the affairs of Gulf Bank and guaranteed its deposits after the derivatives deals went wrong because of a decline in the value of the euro against the dollar. But the central bank said the losses will not "affect Gulf Bank's activities (nor) its ability to continue providing its normal banking services," although its shares remain suspended from trading.
Central bank governor Sheikh Salem Abdulaziz al-Sabah said on Monday that no other local banks faced problems from derivatives deals, but the Kuwait Stock Exchange has still been plunging in the face of investor concerns. On Tuesday, the KSE index sank 2.1 percent at 9,685.30 with the leading banks sector down 1.7 percent. KSE has so far this week shed 7.6 percent on top of three percent last week.
Frustrated dealers, who in recent days have staged demonstrations and walkouts, announced plans to march on parliament on Wednesday to press their demands for government intervention to shore up the battered financial system. The market decline came despite newspaper reports that the government has set up a fund worth 1.5 billion dinars (5.6 billion dollars) to help investment firms with their troubled foreign debt.
On Tuesday Kuwait's cabinet also backed a bill to guarantee local bank deposits which will be submitted to parliament for its approval, Finance Minister Mustafa al-Shamali told reporters.
There are seven commercial and three Islamic banks in the emirate. Deposits at the end of September stood at 22 billion dinars (82 billion dollars). Kuwait will be the third Gulf state to guarantee bank deposits following the United Arab Emirates and Saudi Arabia amid concern about a global economic downturn.
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