'Secure our home base first'

The UAE is not sheltered from the financial crisis and priority should be on problem solving in the region, according to the head of Dubai's Department of Finance. "If we see a bank like Gulf Bank in Kuwait [suffering] and businesses in Saudi Arabia and mortgage providers [across the Gulf] struggling to get funding, it's clear that we have issues," said Nasser bin Hassan al Shaikh, the director general of the Dubai Department of Finance, who was speaking yesterday at a panel session at the DIFC Week conference in Dubai. "The priority is to secure our home base first."

Mr Shaikh emphasised the importance of companies working together to get through the global ordeal. "When it comes to real estate, this was the first time that all major developers sat down and talked openly about projects," he said. "If any company has a chance of dealing with this crisis, they must work together." Arif Naqvi, the head of one of the UAE's leading private equity houses, said it was difficult to raise funds during these troubled times. "Banks are not willing to provide long-term stable sources of capital for important projects, whether they be infrastructure or otherwise," said Mr Naqvi, the founder and chief executive of Abraaj Capital.

However, Bryan Stirewalt, the director of supervision at Dubai Financial Services Authority, warned that non-bank lending organisations could hurt the financial stability of the country if not regulated. He said lenders that were closely tied to property developers employed less-stringent loan practices than banks because they made their profits principally from the sale of the property, not the loan. He said similar situations in the US had caused the subprime mortgage debacle, where mounting defaults from property loans rocked the world economy.

"That misplaced incentive [to sell the property] led to the current problems," Mr Stirewalt said. "The credit risk that they created was the hot potato that went up all the way to the banking system." In the US, he said, almost all industries were watched by different regulatory bodies but no one was looking at the overall market, which was one of the reasons for the current woes in the US, and globally.

Michael Lesser, the managing director of supervision at Qatar Financial Centre Authority, said financial companies that bought debt securities put themselves in danger by depending too much on rating agencies, "which consider solvency not volatility". He said the boards of companies in the Gulf should become more involved in setting risk strategies. While promoting the importance of solving regional issues in light of the global financial crisis, industry officials have warned against protectionism.

"International co-operation is essential, it's very important that economies around the world continue to work together," Peter Oppenheimer, a partner and global strategist at Goldman Sachs, said at the panel shared with Mr Shaikh. "There is a risk that people will look inward and try to protect their own neighbourhoods, but we live in a global neighbourhood now and... global interests are very well aligned."

He added that economies the world over were not expected to begin growing at normal rates again until 2010. "Even as economies start to recover in the second half [of next year], it won't be until 2010 that economies grow back [at steady rates]," said Mr Oppenheimer. "Having said that, markets have already discounted enormous amounts of value and they will recover in anticipation of opportunities made."

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