The news that Kuwait’s Global Investment House defaulted on most of its US$3 billion (Dh11bn) in loans sent shock waves through the Gulf, raising fears that others could follow suit. To compound the uncertainty, Moody’s, the credit ratings agency, last month issued its first negative outlook for banks in the Emirates since it began reviewing them a decade ago.
However, from the financial crisis, the Gulf could come out stronger if a more rigorous internal analysis of credit extension and supervision is pursued. The name of the game is transparency and yet more transparency if both regional and international confidence in the financial system is to be restored.
The decision by Moody’s to issue its first negative outlook was prompted by the perceived lack of transparency in the way the nation’s property developers conduct their business, and in turn by the manner in which loans have been extended to this sector by regional banks.
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