The abrupt and unexpected collapse of Silicon Valley Bank (SVB) and Signature Bank in the US has sent shockwaves through global markets. However, its impact on the UAE is minimal, experts have said.
“Most businessmen in the region viewed it as lucrative business opportunity … Bankers are perceiving SVB’s collapse as an opportunity to bail out cash-strapped startups and tech entities. That being said, the immediate ripple effect of the news was felt in the UAE, too, as shares of banks traded lower,” said Vijay Valecha, chief investment officer at Century Financial.
SVB Financial Group became the largest bank to fail since the 2008 financial crisis on Friday, roiling markets around the world.
Valecha stressed that the UAE has developed several policies and initiatives to actively support the startup ecosystem within the country.
“The government has made funding and financial support accessible through (various) programmes … Most importantly, the government has created a business-friendly regulatory environment that offers exemptions and incentives to startups that may be struggling on account of exposure to lenders or compliance issues,” he said.
The UAE also has a strong legal system to safeguard startups that have exposure to a lender gone bust, he added.
Valecha highlighted how the SVB catered to several startups and venture capital firms across the world, including the Mena region.
“It … provided educational resources and networking opportunities to help startups raise funding and access resources. Nonetheless, the startup ecosystem has evolved considerably in the UAE. These fledgling ventures are not only receiving support from lenders like SVB, but also from family-owned businesses and well-stablished corporations within the UAE. Mature founders with years of expertise are foraying into the startup field,” Valecha added.
The dollar effect
Bas Kooijman, CEO and asset manager of DHF Capital S.A., said since the UAE dirham is linked to the dollar, “anything significant that happens to the dollar will have an effect on the dirham”.
“When the market opened today (Monday), we saw a 0-0.4 per cent gap between the euro-dirham parity which meant, based on this news, we saw an immediate effect on the currency rates from a technical point of view.”
“This could have a downstream impact on technology companies. They may not be a direct client of SVB and the other banks that are currently in trouble, but they might have suppliers or people that they are working directly with Silicon Valley that may not be able to pay their bills,” said Kooijman.
Checks and balances
Dhaval Jasani, founder and CEO, ZTI Global Consulting, said the UAE Central Bank has adequate checks and balances in place. Its monitoring tools ensure stability in the country’s financial sector, he added.
He did not rule out the possibility of entities in the UAE’s tech sector having some exposure to SVB, “be it in the form of deposits or other products”.
Affected startups should look at appointing US-based lawyers to coordinate with the regulators and authorities concerned, he said.
“Dealing with banks and financial institutions away from the home ground may lead to complications, as is the case with SVB,” he added.
“As a precaution, entities should exercise caution (when) dealing with banks and financial institutions in foreign jurisdictions.”