Flip through the latest issue of Gulf Weekly.
These are days when people would love to see banks punished for their profligacy. Taxpayers around the world are outraged at having to bail out 'fat-cat' bankers. Instead they want bankers to pay for their errors.
But when people punish the banks, it goes without saying that they will not be able to lend money as freely as they have been doing.
So people who are deemed bad risks, such as the self-employed and people in flashy professions will find it harder to get a mortgage. Small companies will find it more difficult to raise capital. Start-ups will find it harder to get going. Big companies, even profitable ones, will have to pare back their investment plans and cut their staff levels. Everything will slow down as a result.
This was what happened in Japan in the 1990s after their great lending bubble burst and there was a botched rescue of the banks. The country had a lost decade with virtually no growth at all, sliding property prices, rising unemployment and falling living standards.
During the last year, even before any whistle-blower has taken centre-stage, the amount banks have lent to companies has halved, and evidence is growing that credit facilities are being provided on a shorter-term basis.
Year-on-year syndicated lending has halved, according to data from Reuters Loan Pricing Corporation (LPC). Lending to companies in Europe, the Middle East and Africa (EMEA) has continued to slow with volume of $630 billion for the year to date 2008, down 49 per cent on the same period of last year.
Over the past three months, the volume in EMEA has dropped 70 per cent to $127 billion from $422 billion seen in the third quarter of 2007, when the credit crunch had just hit the global markets. The trend is a global one. The fall in the US is even more substantial. There, the volume of syndicated loans has dropped to $633.9 billion in the year to date, from $1,362 billion over the same period last year.
In the third quarter of 2008, syndicated lending fell to $210.2 billion from $407.4 billion over the same quarter in 2007. The largest loan of the quarter in EMEA was the $6 billion loan for the Investment Corporation of Dubai. Three of the third quarter's 10 largest deals were for Russian and Middle Eastern companies, according to Reuters LPC. But the contraction in lending is also being demonstrated in banks cutting back the length of time over which they are willing to lend.
There is evidence that banks are reducing the terms over which they are making so-called revolving credit facilities available to companies. These undrawn loans are short term, up to one year or more, and work in a similar way to an overdraft facility at a bank.
Syndicated lending to the Gulf is now severely disrupted and several large loans have been postponed, reworked, repaid or drawn down to cope with extraordinary market conditions, senior banking sources said. Gulf-based banks have battled increased funding costs for most of the year and have relied heavily on European and Asian banks to buy loans for regional borrowers.
State-owned Qatar Investment Authority has ditched plans to secure a refinancing loan and instead opted to repay back its debut $3 billion loan from October 2007.
Kuwait's Global Investment House increased the margin on its $410 million, three-year term loan by 35 basis points (bps) to 210 bps over Libor.
Dubai government-owned entities, known collectively as Dubai Incorporated, have had a busy year in the loan market, but some of the deals have been hit by falling liquidity as well as an oversupply of paper.
Borse Dubai is finding it very difficult to find bank support to refinance the company's $3.78 billion loan that matures in February, as reported by Reuters Loan Pricing Corporation.
Port & Free Zone World, a subsidiary of state-owned investment group Dubai World, reduced its loan to $1.003 billion-equivalent from $1.25 billion.
A $1.5 billion, five-year loan for DIFC Investments, the investment arm of the Dubai International Financial Centre (DIFC) has been under discussion since July but is now in doubt.
Barclays, Deutsche Bank, Dubai Islamic Bank, Emirates Bank, Goldman Sachs and Mashreq Bank had been lined up to arrange the financing, but Barclays has now withdrawn its support.
Dubai Aerospace Enterprise has been in the market with a $1 billion loan since July, but the leads are currently in talks over the future of the deal and may even decide to pull it.
But how long would these negative conditions last? History tells us that bank crises do not last forever. Confidence eventually returns and banks feel secure enough to start lending money again. Unfortunately there is a catch here. Confidence evaporates abruptly. It returns gradually and maybe painfully.
