Are Gulf banks ready for complex products?
The GCC's early forays into the derivatives space haven't gone very well - Kuwait's Gulf Bank lost $1.4bn through trading them. Does the region have the expertise necessary to operate in this market?
It's easy to point the finger for losses incurred on these complex products by Western institutions, but Gulf Bank's losses might suggest something else - that, in trading derivatives, local GCC banks might be trying too much, too soon.
At a recent conference on derivatives in Dubai, experts pointed out that to have a derivatives business you need an infrastructure that is "heavy and more refined" and Kuwait simply doesn't have this.
Gulf Bank's losses might not be indicative of problems with derivatives themselves, but merely demonstrate the dangers of over-leveraging and not applying controls on the counter-party on derivatives, the experts say.
Dubai's international financial exchange (DIFX) is set to trade equity derivatives this week. But is the region, in fact, ready?
Does this represent a new dawn for the GCC financial sector? Or has a big can of worms been opened? Your thoughts, please....
