Park­ing money in the coun­try has be­come un­de­sir­able for non-res­i­dents

The National - News - - BUSINESS - Sar­mad Khan

Gov­ern­ment de­posits have ex­tended a life­line to Qatari banks, eas­ing some of the dam­age of de­posits out­flow in the wake of the diplo­matic row with the Arab quar­tet of Saudi Ara­bia, the UAE, Bahrain and Egypt.

How­ever, any es­ca­la­tion of the dis­pute or it con­tin­u­ing over an ex­tended pe­riod will in­crease pres­sure, af­fect as­set qual­ity and im­pact the prof­itabil­ity of the lenders.

“The longer the cri­sis lasts, the more it will weaken in­vestor con­fi­dence [in the Qatari bank­ing sec­tor],” BMI, a unit of Fitch Rat­ings, said in a re­search note re­leased on No­vem­ber 21. “In turn, this poses risks to banks’ fund­ing and prof­itabil­ity – par­tic­u­larly at a time of struc­turally lower oil prices and ris­ing in­ter­est rates.”

The four Arab na­tions have sev­ered diplo­matic and trans­porta­tion ties and im­posed an eco­nomic em­bargo on Qatar.

The diplo­matic tus­sle has se­verely af­fected the coun­try’s bank­ing and fi­nan­cial sec­tor and about US$30 bil­lion of funds out­flows have been re­ported since June, ac­cord­ing to Citi bank.

The Qatari gov­ern­ment stepped in to try to sta­bilise the bank­ing sec­tor with Qatar’s cen­tral bank plac­ing de­posits with lo­cal lenders. While the funds from GCC-based in­vestors and busi­nesses flowed out, do­mes­tic de­posits rose in the bank­ing sys­tem, pri­mar­ily from pub­lic sec­tor com­pa­nies, or Q-com­pa­nies as they are known in Qatar.

“We do not have a break­down of which of these is re­spon­si­ble [for the de­posits], but we be­lieve the most likely can­di­date is the Qatar In­vest­ment Au­thor­ity, which the Qatari gov­ern­ment has claimed has in ex­cess of $300bn in for­eign ex­change as­sets that it can de­ploy to help sta­bilise out­flows and re­in­force the coun­try’s peg against the dol­lar,” said Farouk Soussa, Citi’s chief econ­o­mist for the Mid­dle East, in the re­search note.

Non-res­i­dent de­posits – an in­creas­ingly im­por­tant source of fund­ing amid lower oil prices, which in re­cent years have caused a fall in gov­ern­ment de­posits – made up 24.2 per cent of to­tal de­posits in May, prior to the out­break of the diplo­matic cri­sis.

At the time, GCC coun­tries were es­ti­mated to have ac­counted for about 6 to 8 per cent of to­tal de­posits in Qatar. Non-res­i­dent de­posits dropped by 7.8 per cent month-on-month on av­er­age in June and July and, since then, the pace of de­cline has slowed down, to 5.2 per cent in Au­gust and 4.2 per cent in Septem­ber, ac­cord­ing to BMI.

Qatari banks’ to­tal li­a­bil­i­ties had slight in­creases of 1.1 per cent in Au­gust and 1.4 per cent in Septem­ber, af­ter hav­ing con­tracted over June-July. Growth in pub­lic sec­tor de­posits, which rose sharply in the first two months of the diplo­matic row, has also de­cel­er­ated markedly in re­cent months.

To try to ease the pres­sure on banks and con­vince the ex­pa­tri­ates to re­main in the be­lea­guered coun­try, the reg­u­la­tor has also re­laxed bank­ing and for­eign ex­change reg­u­la­tions.

The cen­tral bank at the end of Oc­to­ber or­dered con­ven­tional and

Is­lamic banks to al­low res­i­dents with ex­pir­ing visas to con­duct all their bank­ing op­er­a­tions through­out the of­fi­cial three-month pe­riod for re­new­ing their res­i­dency af­ter the visa ex­piry.

The or­der also ap­plied to for­eign ex­changes reg­u­lated by the cen­tral bank en­abling them to con­tinue con­duct­ing ac­tiv­i­ties in­clud­ing for­eign ex­change and the trans­fer and re­ceipt of money.

While the re­cent data sug­gests that the hard­ships of Qatari banks’ fund­ing have eased and the pres­sures are man­age­able in the short term, the chal­lenges are ex­pected to be “more pro­nounced” for the lenders if the diplo­matic cri­sis drags on, BMI noted.

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