Liquidity in Qatar’s banking sector has “tightened” further on the back of a fall in hydrocarbon-related public sector deposits at 9% year on year in January, Samba Financial Group has said in a report.
The loan to deposit ratio stood at 122% in January, the highest since December 2012, it said.
In part, the recent tightening reflects the October and November auction of government bonds and sukuk of varying maturities, Samba said.
“Unusually, the government accepted all of the bank bids, draining QR22.2bn ($6.1bn) from the banking system,” it said.
Lending rates subsequently soared “as banks scrambled for liquidity” putting net interest margins under pressure.
It is reported that some banks may now need to raise capital, probably through private placements with pension funds.
There are also reports that the Qatar Central Bank may cut the repo rate, which currently stands at 4.5% to 2.5% to ease the financing cost of banks, though as yet there has been no movement, Samba said.
Qatar remains rated AA, AA2 and AA by S&P, Moody’s and Fitch respectively, the report noted.
In fact, S&P has recently reaffirmed Qatar’s rating whilst downgrading other notable hydrocarbon exporters including Saudi, Bahrain, Oman and Kazakhstan, while Russia was placed on a negative watch.
S&P’s reasons for exempting Qatar from a downgrade included the relative political stability of the country, the fact that growth should be maintained thanks to high capital spending; its sizable financial assets and, perhaps most importantly, the predictability of its income stream after Qatar signed new long-term LNG export contracts with India and Pakistan.
Despite the positive move from S&P, Moody’s has recently included Qatar in a list of hydrocarbon exporters that have been “placed on review” for a possible downgrade.