Problems for Qatar start to kick in

▶ Banks’ true condition won’t fully be revealed until the third quarter

After a couple of months of sounding concern over Qatar’s banks, Moody’s has cut the outlook on the country’s lenders to negative from stable. While it doesn’t come as much of a surprise as the row between Qatar and a number of its co-regionalists enters its third month, belief is that a continuation of the crisis will dent the country’s economic prospects.

Already the country’s banks are having to raise interest rates to attract fresh funds as the risks of holding Qatari riyals increase.

So far the situation is stable but things could easily get more difficult if Qatar were to face more sanctions. For the Qataris, the most worrying prospect would be if other Gulf nations yank deposits out of the country’s banks. It’s been estimated by analysts that Qatari banks have borrowed about 60 billion riyals (Dh60.53bn) from the GCC. That represents about 10 per cent of deposits in the banking sector, according to statistics from the country’s central bank. If those were pulled out, a considerable dent in the country’s economy would be inflicted. Already, foreigners have been pulling money out of Qatar.

It’s too early to tell what the impact of the Qatar crisis will be on the profitability of Doha’s banks in Q3

Non-resident deposits with the 18 lenders in the world’s biggest liquefied natural gas exporting nation dropped 7.6 per cent to 170.6 billion riyals (Dh172.63bn) in June from a month earlier, Bloomberg reported, citing data posted on the Qatar Central Bank’s website.

The decline is the biggest since November 2015.

Banks are the foundation stones of any economy because without them companies would find it difficult to raise money, especially in Qatar’s case since other forms of funding, such as capital markets are decidedly unattractive in light of the drop in stock prices since the crisis broke out.

It’s too early to tell what the impact of the Qatar crisis will be on the profitability of banks as second quarter earnings, which were by and large solid, only included the first month of the crisis. We will have to wait until the third quarter to gauge the real impact.

Qatari banks should not get complacent because many investors take rating agencies seriously and any further deterioration in the country’s economy may prompt rating agencies to not just lower their outlooks but also to start taking ratings a notch to reflect new dismal realities.