Qatari banks lost half of its investors and were downgraded in the same week

Qatar National Bank's head office building in Doha. (Reuters)

Qatari Banks are lost almost half of their traditional investor base and have been downgraded to a negative status by Moody’s all in the same week.

A cut of trade, economic and political ties from the quartet of Saudi Arabia, United Arab Emirates, Bahrain and Egypt due to Qatari funding of extremism and support of terrorist groups has resulted in the outflow of foreign funds from the country.

Moody’s warned that the prolonged regional dispute could trigger some outflows of foreign deposits and other external funding which represents around 36 percent of total banking system liabilities as of May 2017.

As a result, the banks’ high liquidity buffers would likely reduce, as domestic deposits remain tight due to reduced oil revenues.

Bloomberg, on Thursday, reported that Qatar National Bank, Commercial Bank and Doha Bank are considering funding options that include loans, private placements or dollar bonds. Investors and analysts however say the lenders will have to pay more to compensate for the region’s political risk to drum up interest.

The Moody’s outlook on Qatar’s banking system changed to negative from stable on Tuesday due to the weakening operating conditions and continued funding pressures facing Qatari banks.

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. “This leaves them vulnerable to shifts in investor sentiment.”

Moody’s expects Qatar’s GDP growth to slow to 2.4% in 2017 from exceptionally high rates of around 13.3% recorded during the 2006-2014 period

The gradual economic slowdown, combined with Qatar’s ongoing dispute with some neighboring countries and continued challenges in the construction and contracting sector, will lead asset quality to dip slightly.

While borrowing costs will rise, “the assumption of government support means yields won’t rise that much,” Max Wolman, a London-based senior investment manager at Aberdeen Asset Management Plc told Bloomberg.

Even if they offer “200 basis points over midswaps, I would not lend to them at this rate, as it will not cover for the risk of further deterioration,” said Marina Davies, a London-based senior credit analyst at Pioneer Investment Management

“Basically, we are talking not only about the price, but about the availability of such funding, as so far the banking system seems to be having capital outflows.”

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Last Update: Wednesday, 20 May 2020 KSA 12:04 - GMT 09:04
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