Govt guarantee on deposits cushions Brunei from crisis

Govt guarantee on deposits cushions Brunei from crisis


Pipeline: A worker is framed by water pipes at a construction site in Gadong. The crisis has been relatively painless for Brunei partly because of a government move to guarantee deposits. Picture: BT/Rudolf Portillo
DEBBIE TOO
BANDAR SERI BEGAWAN

Thursday, November 6, 2008

THE financial crisis may be hurting economies worldwide, but in the case of Brunei, "it has been relatively painless", thanks in part to the government's move last month to guarantee bank deposits. But the sultanate may not be as lucky if a global recession drags, Glen Rase, Citibank director and chairman of the Brunei Association of Banks, yesterday said.

The impact of the global financial crisis is relatively painless for Brunei due partly to the government guarantee on deposits, which had a very calming affect on the market, he said at the sidelines of a forum yesterday on the impact of the US subprime crisis and inflation on Asean economies.

"It has made it much easier as banks," he stressed.

"I think the region has very different kinds of impact. Brunei is a very liquid economy with a lot of savings here ... so the impacts here are different from some markets, which are heavily dependent on foreign direct investment or foreign financial commerce."

The government's move last month to guarantee deposits came in the heels of similar moves by other governments to safeguard their financial system amid a credit crunch which started in the US.

In the sultanate's case, the guarantee covers all Brunei dollar and foreign currency deposits of individual and non-bank customers in Islamic and conventional banks and finance companies, which are licensed and regulated by the Ministry of Finance. The guarantee will be valid until December 31, 2010.

Still, Rase cautioned that Brunei may feel the pinch if the global recession drags.

"If the recession is very long and the policy response doesn't survive the economy a couple years down the road when everything slows down, then you'll probably see the impact on Brunei, but I don't see any significant impacts now," he said.

Asked about when Brunei will feel the impact of the global financial crisis, Rase said, "Brunei is already feeling the effect of it. Oil prices are down by half and that is a direct response to the US slowdown and much in Europe, Japan and elsewhere. Oil revenues in Brunei are managed so that they don't flow in when prices go up and they don't necessarily collapse when prices come down, which is very well managed. So effectively, the average man on the street isn't going to see a lot of impact unless he or she is invested in other markets."

In case of inflation pressures, he said, "We've seen now that the commodity boom is pretty much over, so the prices of steel and one of the other things that go into building our economy is starting to come down and a lot of the inflationary pressure that is associated with that commodity boom has gone away."

For long-term investors, the crisis may be an opportune time to start buying property assets in London and Australia, where value has gone down, another participant said.

"If you are a long-term owner, this is the sale of the century. Some of the sovereign wealth funds dropped too early, but over the longer term it should be very positive," said Chan Kok Peng, executive director of research and chief economist of BNP Paribas Securities (Singapore).

He added that an equities rebound will not take five years. "Somehow second half of next year, you should see some rebound, but I'm not saying it will go back to the previous peak because of global deleveraging." The Brunei Times