Will this impact startups in the UAE?

(MENAFN- Khaleej Times) The sudden 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 say.

“Most entrepreneurs in the region saw it as a lucrative business opportunity… Bankers see the SVB collapse as an opportunity to bail out cash-strapped startups and tech players. That said, the immediate knock-on effect of the news was felt in the UAE as well, as banking stocks traded lower,” said Vijay Valecha, chief investment officer at Century Financial.

SVB Financial Group on Friday became the largest bank to fail since the 2008 financial crisis, sending shockwaves through markets around the world.

Valecha stressed that the UAE has developed a number of policies and initiatives aimed at actively supporting the startup ecosystem in the country.

Vijay Valecha, CIO at Century Financial

“The government has made funding and financial support available through (various) schemes… Most importantly, the government has created a business-friendly regulatory environment that offers exemptions and incentives to startups that may face challenges due to exposure to lenders or compliance issues,” he said.

Startup Protection

He added that the UAE also has a strong legal system in place to protect startups at risk of lender bankruptcy.

Valecha highlighted how SVB has supported numerous startups and venture capital firms around the world, including in the MENA region.

“This… has provided educational resources and networking opportunities to help startups raise funds and access resources. However, the startup ecosystem has grown significantly in the UAE. These young ventures are supported not only by lenders like SVB but also by family offices and well-established corporations in the UAE. Mature founders with years of experience are entering the startup market,” Valecha added.

The Dollar Effect

Bas Kooijman, CEO and asset manager of DHF Capital SA, said that because the UAE dirham is pegged to the dollar, “anything significant that happens to the dollar will have an impact on the dirham.”

Bas Kooijman, CEO and Asset Manager of DHF Capital SA

“When the market opened today (Monday), we saw a spread of 0-0.4% between the euro and dirham parity, which meant that based on this information, from a technical point of view, we immediately saw an impact on exchange rates.”

“This could have an impact on technology companies. They may not be direct customers of SVB and other banks that are struggling right now, but they may have suppliers or people they deal with directly in Silicon Valley who may not be able to pay their bills,” Kooijman said.

Checks and balances

Dhaval Jasani, founder and CEO of ZTI Global Consulting, said the UAE Central Bank has adequate checks and balances. Its monitoring tools ensure the stability of the country’s financial sector, he added.

Dhaval Jasani, Founder and CEO of ZTI Global Consulting

He did not rule out the possibility that entities in the UAE technology sector would have some exposure to SVB, “whether through deposits or other products.”

He added that affected startups should consider hiring U.S.-based lawyers to coordinate with regulators and relevant authorities.

“Cooperation with banks and financial institutions from outside the country can lead to complications, as is the case with SVB,” he added.

“As a precaution, entities should exercise caution when doing business with banks and financial institutions in offshore jurisdictions.”

READ ALSO:

Asian markets fall as SVB contagion fears hit banking sector

SVB’s UK unit sold to HSBC for £1 in biggest bankruptcy since 2008 financial crisis

‘No connection with SVB’: Indian bank SVC reassures depositors amid brand name confusion

Biden reassures Wall Street, but Europe plunges into crisis on banking worries

MENAFN09082024000049011007ID1108536765

Legal disclaimer:
MENAFN provides the information “as is” without warranty of any kind. We are not responsible for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, please contact the provider above.