Thursday, October 09, 2008

Armageddon outta here

The current headlong rush towards global financial meltdown and supposedly the biggest crash since 1929 provides expatriates with food for thought. My guess is that a lot of us are here in the middle east at least in part because the salary and benefits exceed those we could get back home. And this in turn implies a certain level of saving might be happening. Certainly there are plenty of investment opportunities, with financial advisers available to direct savings into what are touted as high-yield tax-advantageous investment plans. Bank accounts that are fully legal yet invisible to high taxation regimes may be exploited, and these are surely bulging with wads of everyone’s hard-earned filthy lucre.

What happens if a bank goes bust? Well the money vanishes, doesn’t it?

Apparently not. A rather alarming letter in 7DAYS reports that 75% of the first £20,000 is safe with HSBC. That’s alright then: of my one million dirhams (Ha, ha!), if HSBC experienced fiscal Armageddon I’d be sure to receive Dh102,000. Eventually.

I rang HSBC to find out the truth. There was no reply from the branch other than a recorded message advising that I should call the phone banking help desk. There I was told that there was, to the best of Ms Helpdesk’s knowledge, no structure in place to protect depositors’ savings. Despite promises to the contrary, no-one from HSBC has contacted me to allay my concern. None of these experiences has served to boost my confidence.

I suggest that unless a bank - any bank - can offer its customers some guaranteed security, depositors will inevitably withdraw funds to protect themselves against loss. If one bank offers security and another doesn’t, it isn’t rocket science to work out the likely trajectory of clients’ savings. Thus the prophecy of doom becomes self-fulfilling.
    This post edited on 13 October to add that on Sunday evening I heard reported on Dubai Eye (103.8MHz) that the federal government had undertaken to guarantee deposits on banks operating within the UAE. Although local banks only were explicitly included, the interviewee (whose name I didn’t catch – sorry) stated that international banks with a local presence were included. Offshore funds were not.

    In today’s press we learn that UAE banks are protected but that foreign banks are excluded from this government protection.

    No, wait! For a period of three years, foreign banks are protected.

    Different versions of the same rumour, as per usual. Plus ça change, plus c’est la même chose.
Maybe I should have bought real estate. Or, after reading this rather scary article in Gulf News perhaps not. Immovable property in the UAE is even more difficult than bank accounts to sort out after someone’s death, and getting a Will into a format that UAE courts recognise is complicated, time-consuming and expensive.

What possible incentive do I have to invest in this country without guarantees of financial security for either myself or my heirs? I might as well store the cash in old socks under a mattress, but I’ll obviously not state here which mattress. Or perhaps instead of saving for the future I should enjoy a riotous and profligate lifestyle today. I mean, if the bank goes bust I’ll lose my deposits so I might as well be up to my eyeballs in debt. If I die here, my estate will be frozen for years by the courts, so I might as well have nothing to bequeath.



Anonymous said...

I can't see how a bank can "guarantee" deposits anyway - the guarantee would be good right up to the point of bankruptcy, but would then be worthless.

What you need is a guarantee backed by an outside body. I'm sure the oil-rich governments of the Gulf would be happy to guarantee deposits made in local banks by temporarily resident expats. Least they can do for all your hard work, really...........

Eric the boater.

the real nick said...

I learned about this several years back and rushed at once to get a sharia compliant will done.
It's not that difficult, cost around 2,000 and a couple of hours at the notary public and my embassy who also had to attest it.
Time and money well spent I think.

Grumpy Goat said...

Important update:

On Sunday 12th October, the UAE government undertook to guarantee all deposits in all banks operating onshore in the Emirates. When more details become available I'll edit the original post.

Surprise, surprise: bank deposits have apparently already started to come into the UAE.


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