Qatar Banks Can Survive Gulf, Foreign Funds Withdrawal, S&P Says

  • Relatively short average tenor on Qatari Banks’ external debt
  • Saudi blockade could result in outflow of external funds

Qatari banks are strong enough to survive the pullout of all Gulf money and then some, according to S&P Global Ratings.

SPGR ran two hypothetical scenarios of capital flight, and concluded that Qatar’s lenders could survive the withdrawal of all Gulf deposits plus a quarter of the remaining foreign funds the banks keep.

Deposits and other funding sources from GCC countries represent about 8 percent of total liabilities of Qatari lenders or $20 billion, S&P said after examining the 2016 positions of the four biggest banks in Qatar. In the worst case, only two unidentified lenders would have to dip into their investment securities portfolio, it concluded.

“We believe the recent developments might result in an outflow of external funding for Qatari banks over the next few months, depending on how the situation evolves,” S&P Global Ratings said. In both scenarios, “the results show the rated Qatari banks to be in a decent position, on a stand-alone basis, to face a significant reduction of external funding.”

Capital flight has been a looming potential danger since Saudi Arabia and its allies began tightening the noose on Qatar on June 5, saying it must distance itself from Iran and stop funding Islamist groups. The kingdom, along with the United Arab Emirates, Egypt and Bahrain, cut diplomatic relations and imposed a land, sea and air blockade. Qatar, the world’s largest exporter of liquefied natural gas, denies the charges and says the Saudis aspire to dominate the region.

So far there have been no orders to withdraw money from Qatari banks, but the Saudi central bank has ordered banks not to increase their exposure to Qatari clients. It has also told banks licensed in the kingdom not to process payments denominated in Qatari riyals, people familiar with the matter said last week.

The U.A.E.’s central bank asked local lenders to do enhanced customer due diligence for any accounts they hold in six Qatari banks, state-run WAM news agency reported Sunday.

Despite the resilience that S&P’s tests showed, “the situation remains very fluid” and could evolve in different directions, in part depending on how long the spat lasts and whether other countries join the sanctions, it said.

Qatar banks’ net external debt totaled about $50 billion at the end of April, the company said. The average tenor of these funds is “relatively short,” expiring in less than one year, with a “significant portion coming from Europe and Asia,” it said.

S&P last week lowered Qatar’s long-term rating by one level to AA-, the fourth-highest investment grade, and put it on negative watch. Qatari stocks have dropped 5.3 percent since June 5, and the index was down 2.25 percent as of 11:41 a.m. in Doha.

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