Qatari banks come un­der pres­sure

Com­mer­cial banks told to hold off on credit

The Star Early Edition - - INTERNATIONAL - Tom Arnold, Hadeel Al Sayegh and Tom Finn

QATAR’S cur­rency came un­der pres­sure yes­ter­day as Gulf Arab com­mer­cial banks started hold­ing off on busi­ness with Qatari banks be­cause of a diplo­matic rift in the re­gion.

Bank­ing sources said some banks from Saudi Ara­bia, the United Arab Emi­rates and Bahrain de­layed let­ters of credit and other deals with Qatari banks af­ter their gov­ern­ments cut diplo­matic ties and trans­port links with Doha on Mon­day, ac­cus­ing Qatar of back­ing ter­ror­ism.

Saudi Ara­bia’s cen­tral bank ad­vised banks in the king­dom not to trade with Qatari banks in Qatari riyals, the sources said. The cen­tral bank did not re­spond to a re­quest for com­ment.

Qatar has dis­missed the ter­ror­ism charge and wel­comed a Kuwaiti me­di­a­tion ef­fort. Doha, the world’s big­gest liq­ue­fied nat­u­ral gas ex­porter, says it has enough re­serves to sup­port its banks and its riyal cur­rency, which is pegged to the dol­lar.

Qatari banks have been bor­row­ing abroad to fund their ac­tiv­i­ties. Their for­eign li­a­bil­i­ties bal­looned to 451 bil­lion riyals (R1.579 tril­lion) in March from 310bn riyals at the end of 2015, cen­tral bank data shows.

So any ex­tended dis­rup­tion to their ties with for­eign banks could po­ten­tially threaten a fund­ing crunch for some Qatari banks. Banks from the UAE, Europe and else­where have been lend­ing to Qatari in­sti­tu­tions.

Gulf bank­ing sources, who de­clined to be named be­cause of po­lit­i­cal sen­si­tiv­i­ties, said Saudi Ara­bian, UAE and Bahraini banks were post­pon­ing deals un­til they re­ceived guid­ance from their cen­tral banks on how to han­dle Qatar.

“We will not take ac­tion without cen­tral bank guid­ance, but it is wise to eval­u­ate what you give to Qatari clients and hold off un­til there is fur­ther clar­ity,” said a UAE banker, adding that trade fi­nance had stalled for the time be­ing.

The sources said the UAE and Bahraini cen­tral banks had asked banks un­der their su­per­vi­sion to re­port their ex­po­sure to Qatari banks. The UAE and Bahraini cen­tral banks did not re­ply to re­quests for com­ment.

Re­serves

With an es­ti­mated $335 bil­lion (R4.27trln) of as­sets in its sov­er­eign wealth fund and its gas ex­ports earn­ing bil­lions of dol­lars ev­ery month, Qatar has enough fi­nan­cial power to pro­tect its banks.

“We are watching the fi­nan­cial sec­tor very closely. If the mar­ket needs liq­uid­ity, the cen­tral bank will def­i­nitely pro­vide liq­uid­ity,” a Qatari cen­tral bank of­fi­cial said.

Nev­er­the­less, los­ing some of their for­eign busi­ness links could be un­com­fort­able for Qatari banks, be­cause they have been ex­pand­ing their loans faster than other banks in the six-na­tion Gulf Co-op­er­a­tion Coun­cil (GCC). To fund this, they have been seek­ing loans and de­posits from the rest of the GCC.

Among large banks, Doha Bank and Qatar Is­lamic Bank (QIB) are the most ex­posed to GCC de­posits, with QIB ob­tain­ing a quar­ter of its de­posits from the GCC, said Olivier Pa­nis, an­a­lyst at Moody’s In­vestors Service. “We need to look into the ma­tu­rity of those de­posits, but if they’re short-term de­posits, this could ex­pose the banks rapidly to re­duced con­fi­dence from GCC in­sti­tu­tions,” he said.

Be­cause of such wor­ries, the Qatari riyal fell in the spot mar­ket yes­ter­day to 3.6470 against the US dol­lar, its low­est level since June 2016, al­though it later re­bounded to 3.6405, al­most equal to its of­fi­cial peg of 3.64. It also fell slightly in the one-year for­wards mar­ket, where traders bet on rates 12 months from now.

The riyal’s drop “is based on spec­u­la­tion”, the Qatari cen­tral bank of­fi­cial said. – Reuters

PHOTO: EPA

A view of the Qatari em­bassy in Cairo, Egypt. Egypt, Saudi Ara­bia, Bahrain and the United Arab Emi­rates cut diplo­matic ties with Qatar – also block­ing their bor­ders, airspace, sea and land con­tact – on Mon­day, ac­cus­ing Qatar of sup­port­ing ter­ror­ism.

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