Qatar banks seek Asian,
European funding as diplomatic crisis bites
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[August 24, 2017]
By Tom Arnold
DUBAI (Reuters) - Qatari banks are turning
to Asia and Europe for funding after clients from other Arab states
pulled billions of dollars from their accounts following a regional
While the Qatari government has placed large deposits in its lenders to
help offset the outflows, banks are trying to find new private funding
as analysts warn there are likely to be more heavy withdrawals in the
Two sources told Reuters that Qatar National Bank <QNBK.QA> (QNB) has
held talks, arranged by banks including Standard Chartered, with
investors in Taiwan about a private placement of Formosa bonds - debt
sold there by foreign issuers and denominated in currencies other than
the Taiwan dollar.
One of the sources added that QNB, which is the Middle East's largest
bank, was also considering private placements in other Asian markets.
The lender has around $6 billion in bonds and medium term notes maturing
between now and mid-2018, much of which it is likely to aim to
refinance, the source said, adding that this was most efficient step in
light of the rift.
Qatar Islamic Bank <QISB.QA>, the country's largest Islamic lender, has
recently raised funds through private placement deals in Japanese yen
and Australian dollars.
It is now exploring more such deals in Europe and Asia, as well as a
certificate of deposit program and a Murabaha - a cost-plus-profit
Islamic facility - to raise cash, according to an international banker.
The bank did not respond to a Reuters request for comment.
A spokesman for Qatar National Bank said: "We have several proposals for
a Formosa issue from several international banks dealing in that part of
However, he added that nothing had yet been agreed or decided on the
timing of the issue or the choice of advisers.
"It is natural for QNB to regularly tap the different international
markets maintaining close relations with its investor base as a frequent
issuer. This is part of the overall QNB's wholesale funding strategy
agreed before the regional diplomatic rift," he said.
Many Qatari banks are facing greater urgency to secure funding since
June when the United Arab Emirates, Saudi Arabia, Egypt and Bahrain
imposed a diplomatic and commercial boycott on Qatar, accusing it of
funding terrorism. Qatar denies the allegations.
The crisis has led to an outflow of around $7.5 billion in foreign
customers' deposits and a further $15 billion in foreign interbank
deposits and borrowings, believed to be mainly from those four Arab
countries, Qatari central bank data shows.
Analysts estimate a further $3 to $4 billion could leave in the coming
months. In response, Qatar's government deposited nearly $18 billion
with local banks in June and July, according to the same data.
The exodus of cash was a threat to liquidity and likely to increase
competition among Qatari banks for deposits, pushing up funding costs
and squeezing margins, Fitch Ratings warned on Wednesday.
ON THE RICH SIDE
Before the crisis, Europe was the largest source of total funding,
including deposits and wholesale funding, for Qatari banks. This was
slightly ahead of clients in member states of the six-nation Gulf
Cooperation Council, of which Qatar remains a member.
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A view shows buildings
at the Doha Cornich, Qatar, August 30, 2016. REUTERS/Naseem Zeitoon/File
After a fall in government deposits in Qatar's banking system in 2016, banks
reacted by attracting costlier non-resident deposits and increasing wholesale
funding to sustain their growth. Deposits represent 75 percent of Qatari banks'
non-equity funding, according to Fitch. Foreign customer deposits accounting for
around a quarter of total deposits.
One Asian banker said Asian investors were attracted by the high ratings of
Qatari banks, but that European investors might find the price of Qatar debt on
the "rich side", particularly as it could be tricky to trade in the secondary
market if the rift continues for long.
Qatari bankers say they have received a stream of phone calls and visits from
many international banks in recent weeks, proving they've kept faith with the
One Qatar-based source said an Asian bank chief executive had recently visited
certain Qatari banks to reassure them that it would support them, while an
unnamed Singapore-based lender was also in talks with a Qatari bank about
providing a bilateral credit facility.
QNB, the Qatari bank with the most diversified funding sources, has also been
the most active in Asia and last year issued a $1.10 billion Formosa bond via
Many other Qatari banks are likely to seek similar deals either through private
placement bonds or sukuk or bilateral loans from relationship banks, sources
"There has been an increase in private placements, as these are easier to
conclude in more uncertain times, but we understand a number of these are with
international investors," said Redmond Ramsdale, senior director of financial
institutions at Fitch. "The international bond markets are open to the Qatari
banks, but higher perceived risk is resulting in higher required yields."
The Asian banker estimated top-tier Qatari banks could pay an extra 40 to 50
basis points on private placement bond deals compared with before the rift, with
more for smaller lenders.
The same banker also expressed scepticism whether private placements and
bilateral loans would be enough to cover all of the banks' funding needs. "They
already had liquidity needs before the crisis, so it's difficult to know whether
they will be able to do that in the volumes they need to compensate for loss of
liquidity," the banker said.
Amid the rift, public bond markets appear unattractive for Qatari banks. Many
are nervous about having to offer a higher yield and about the level of investor
appetite, given that the smaller lenders particularly have historically relied
on demand from Gulf banks, especially those from the UAE.
The situation appears especially acute for Islamic banks, with investors from
Saudi Arabia, the UAE and Bahrain among the largest investors in the
international sukuk market.
Qatar International Islamic Bank <QIIB.QA> remains uncertain when it will issue
a planned U.S. dollar-denominated sukuk, sources told Reuters. It appointed
banks in May for the potential issue, Reuters reported at the time.
The bank declined to comment when contacted by Reuters.
($1 = 3.6414 Qatar riyals)
(Reporting by Tom Arnold; editing by David Stamp)
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