Moody’s downgrade of banks jolts Qatar

dubai — Yet more bad news for the floundering Qatari economy. Moody’s, the premier rating agency, has downgraded Qatar’s banking system from stable to negative over continued funding pressures following a boycott enforced by the Arab quartet.

Moody’s, in a press release, said the simmering regional dispute between Doha and regional powers could trigger outflows of foreign deposits and other external funding, which represents around 36 per cent of total banking system liabilities in Qatar.

As a result, the banks’ high liquidity buffers (at 24 per cent of total assets as at December 2016) would likely reduce, as domestic deposits remain tight due to reduced oil revenues, the statement added.

Against this backdrop, Qatari banks’ profitability will likely decline, with return-on-assets declining to around 1.4 per cent for 2017, from 1.6 per cent in 2016.

reporters@khaleejtimes.com

dubai — International ratings agency Moody’s Investors Service on Tuesday downgraded Qatari banks due to weakening operating conditions and the potential weakening of Doha’s ability to support its financial sectors.

Painting a bleak picture of Qatari banking sector, Moody’s downgraded outlook of Qatar banking system from stable to negative as the financial sectors continues to face funding pressure.

“The outlook also captures the potential weakening capacity of the Qatar government to support the country’s banks… Qatari banks’ reliance on confidence-sensitive external funding has increased in recent years due to a significant decline in oil-related revenues,” said Nitish Bhojnagarwala, a vice-president at Moody’s.

Saudi Arabia, the UAE, Bahrain and Egypt broke ties with Qatar on June 5, accusing Doha of fostering extremist groups and of ties to Iran. This resulted in severe shock to the Qatari economy which is heavily reliant on the Gulf nations for imports and exports of goods and services.

The ratings agency predicted that the Qatari GDP growth to substantially slow down to just 2.4 per cent in 2017 from around 13.3 per cent during 2006-2014 period.

“As a result of the high spending levels and the current oil price we expect a fiscal deficit of around on per cent of GDP for 2017,” Bhojnagarwala said in the report.

Moody’s predicted that domestic credit growth will also slow to 5-7 per cent range for 2017 and 2018, down from 15 per cent in 2015.

According to Khatija Haque, head of Mena Research at Emirates NBD, June monetary indicators for Qatar showed a decline in both foreign assets and foreign liabilities of the commercial banks, which was largely offset by rising domestic funding, from both government deposits and the central bank. Commercial banks’ balance sheets shrank by QR7.6 billion in June. Foreign assets declined QR7.7 billion as funds due from banks abroad and investments abroad declined. While the central bank’s balance sheet shows a decline of $9.1 billion in holdings of foreign securities and a $1.3 billion drop in cash balances with foreign banks.

From getting bad to worse, Moody’s foresees system-wide bad loans to increase next year.

“We expect system-wide problem loans to increase to around 2.2 per cent of gross loans by 2018, up from 1.7 per cent as of December 2016,” said Bhojnagarwala.

Moody’s warned that a prolonged GCC-Qatar dispute could trigger some outflows of foreign deposits while Qatari banks’ profitability will likely decline, Bhojnagarwala added.

Investors pull out

M.R. Raghu, head of research at Marmore Mena Intelligence, said given the close trade and deep geographical links with the GCC, especially Saudi Arabia and the UAE, the ongoing blockade would have short-term financial ramification on Qatar’s economy.

He noted that if current embargo continues for a long-term, the sentiment and attractiveness of the country as a safe haven may deteriorate.

“Increase in food prices, erosion of Qatari fiscal balances and a rise in borrowing costs are some of the real risks that Qatar will continue to face if the situation is not settled amicably,” Raghu added.

According to Marmore’s research report Qatar Stock Exchange was witnessing selling pressure as investors are pulling out of the Qatari equities. Prior to the crisis, GCC and international investors held about nine per cent of Qatar stock market. Since then the GCC investors have reduced their holdings of Qatari shares by more than $200 million (Dh734 million).

— waheedabbas@khaleejtimes.com