LDN - Business

Qatar central bank - government has enough reserves to support Qatari banks

[October 04, 2017] DUBAI (Reuters) - Qatar's government has enough reserves to support its banks in the face of sanctions imposed by other Arab states and reports of its banking system being under strain are false, its central bank governor said on Wednesday.

"The governor said that the government and the central bank are able to support banks with the holdings of the large sovereign wealth fund and the large state reserves,” the statement by Sheikh Abdullah bin Saud al-Thani read.

Sheikh Abdullah said domestic liquidity was up 8.3 percent at the end of July while the monetary base had grown 1.7 percent. He did not specify whether those growth rates were year-on-year or month-on-month.

The central bank is several weeks late in releasing its monthly monetary statistics for the months of July and August, and has not explained the delay or said when the data will be published.

This has left investors guessing about how much the sanctions are reducing liquidity in the banking system and depleting the central bank's foreign reserves.

Statistics for June, released on July 30, showed the central bank's net international reserves plunged by $10.4 billion from the previous month to $24.4 billion in June. The M2 measure of money supply grew 7.7 percent from a year earlier.

Saudi Arabia, the United Arab Emirates, Bahrain and Egypt cut diplomatic and transport ties with Qatar on June 5, disrupting its foreign trade and prompting banks and investors from the four Arab states to pull deposits from Qatari banks.

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Qatar's central bank governor Sheikh Abdullah bin Saud al-Thani claps during the 58th Gulf Cooperation Council (GCC) Central Bank Governors' annual meeting in Manama September 18, 2013. REUTERS/Hamad I Mohammed

Qatar's sovereign wealth fund, the Qatar Investment Authority, responded by pumping billions of dollars into local banks to shore up their deposits. Banking sector data suggests such injections totalled about $8 billion in August alone.

Pressure on deposits may now ease as the Arab states no longer have as much money left in Qatar to withdraw. The QIA is believed to have had about $300 billion of assets before the crisis, so most analysts believe it can easily continue defending the banks and replenish the central bank's reserves.

Nevertheless, the diplomatic crisis has pushed up funding costs for Qatari banks and hurt their foreign business. Credit rating agency Moody’s cut the outlook for Qatar’s banking sector to negative from stable in August.

“Qatari banks' reliance on confidence-sensitive external funding has increased in recent years due to a significant decline in oil-related revenues. This leaves them vulnerable to shifts in investor sentiment," said Nitish Bhojnagarwala, a vice president at Moody's.

(Reporting by Hadeel Al Sayegh, Sylvia Westall and Sami Aboudi; Writing by Andrew Torchia)

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