The sharp increase in Qatari banks’ external debt is raising their vulnerability to risk. Some of the leading Qatari banks sought external liquidity when deposits of government and government-related entities (GREs) decreased when oil prices started to decline in the second half of 2014, S&P Global Ratings said in a report.
"The banks have managed to attract a significant amount of external funding, mostly denominated in US dollars and mostly short-term debt of about six months, according to our understanding. On the other hand, Qatari banks have used a large portion of this funding to finance typically long-term local projects denominated in Qatari riyal, resulting in a significant open position in US dollars, ," said S&P Global Ratings credit analyst Mohamed Damak
Although S&P considers that external funding is a factor to watch for Qatari banks, S&P doesn’t believe it is an imminent threat to the health of the banking system. Indeed, several factors are protecting banks from the risks of significant external funding like the expected stability of the peg between the Qatari riyal and the US dollar, which could otherwise inflate the value of external debt.
“ We view the Qatari government as highly supportive toward its banking system. The Central Bank of Qatar introduced regulation in 2016 that caps, among other things, a bank's foreign currency open position in US dollars at 25 percent of capital and reserves. Nevertheless, we expect implementation of this circular to take some time given that the Qatari banking system is starting off with an even higher open position”, S&P’s research note on Qatari banks said.
The S&P report noted that the trend of falling resident deposits partly reversed in the first two months of 2017 due to a stabilization in oil prices, which the ratings agency expects will remain at $50 per barrel in 2017 and 2018, and the government's issuance of large international bonds.
Government deposits increased 5 percent as of February 28, 2017, from year-end 2016 levels. On the asset side, growth in Qatari banks' domestic loans nevertheless remained buoyant at 12.6 percent in 2016,
