Economic slowdown likely to hurt Qatar’s banking sector asset quality

Economic slowdown likely to hurt Qatar’s banking sector asset quality

Ubai: recent sanctions against Qatar by a group of states led by Saudi Arabia, the United Arab Emirates, Bahrain, Egypt, Libya, Yemen and some other allies should have a major impact on Qatar’s economy and its financial sector if a resolution takes much Time, according to the rating agency Moody.

“Weaker economic activity could lead to a deterioration of the quality of assets in the banking system, with an escalation involving sanctions against the financial sector, may require more support from government liquidity,” said Steffen Dyck, chief Moody’s Sovereign Risk Group.

Although sanctions have not been applied to date, analysts believe that this possibility can not be totally excluded.

In addition to rising global interest rates, financing costs for government and other Qatar-based transmitters will further develop and the government’s balance sheet deteriorate more rapidly in a scenario of prolonged stagnation that will extend until 2018.

The sovereign has no need for external refinancing until the first quarter of 2018, when a $ 2 billion sukuk ($ 7.3 billion dirhams) carried out by SOQ Sukuk Un Q.S.C. It will mature, but businesses, including government-related entities and banks face significant repayments over the next 12 months.

Apart from bail and sukuk, Moody’s estimates that total short-term external liabilities amounted to more than $ 115 billion (68% of the nominal gross domestic product (GDP) expected for 2017) of which approximately A third is estimated to be attributable to CCMD creditors. Moody estimated that approximately half of this is explained by nonresident deposits and the risk of increased surges in a scenario of more sanctions in the financial sector.
The government has substantial depreciation assets, including net international reserves of about 35 billion to the central bank of Qatar and assets for more than 300 billion managed by the Qatar Investment Authority (QIA).

Government resources as well as liquid external assets in the banking system, which was approximately $ 30 billion in May, according to Moody’s estimates, provide a strong mitigation of short-term liquidity problems. However, the deterioration of economic activity could have a significant negative impact on the financial sector.

Key economic indicators in Qatar in 2016 and the first quarter of 2017 appear bleak as the country faces diplomatic and economic isolation from its neighbors and other Arab countries.

Qatar’s key economic indicators, as liquidity in the growth of the banking and credit sector were positive until the end of the first quarter.

Total credit lines continued to rise to a record level at the end of the first quarter of 2017, up 1.9 percent to 855 trillion Qatar nership (Dh $ 862 trillion).

However, with economic sanctions affecting liquidity, Qatar faces a potential shortage of funding and high costs that could limit credit growth, which would lead to lower GDP growth, especially non-GDP growth. oil.
“The downgrade is likely gradually. The risk escalation is still the search.

The large FX mismatch in Qatar’s banking sector makes it vulnerable to a sudden withdrawal of GCC funds. We estimate 35 billion dollars (20 percent of GDP) in the outputs of the banking sector within a year if the GCC decided to limit financial ties, “said Jean-Michel Saliba, economist Mena Bank of America Merrill Lynch.

Analysts said that while foreign assets QIA will help the country withstand exits and defend the track, extended outings could erode the balance of QIA.

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