Doha – Mubasher: Capital Intelligence Ratings Ltd (CI) on Tuesday warned that if Qatar’s isolation continues on the back of diplomatic rift announced earlier this month, this may negatively impact Qatar’s sovereign and banks ratings.
On 5 June, several Arab and Gulf countries, led by Saudi Arabia and including Egypt, the UAE, and Bahrain, announced cutting diplomatic and suspending land, air, and sea transport links, accusing it of supporting terrorism.
“Should the break persist, there will be adverse impacts on all parties but in particular on Qatar and potentially therefore on its banking system,” the ratings agency said in a statement.
“A prolonged isolation could weaken both sovereign credit metrics and more particularly the liquidity and funding of [Qatar’s] banking sector, CI Ratings highlighted.
It further noted that despite the third parties efforts being made to defuse the crisis, “it is becoming increasingly possible that the crisis will continue,” the ratings agency added.
Regarding the sovereign rating, Qatar’s external debt is seen as much higher than its counterparts, with external debt representing around 130% of gross domestic product (GDP) by the end of 2016, added to infrastructure financing commitments pertaining to hosting the Qatar World Cup 2022.
CI expects that if the issue continues for a few months, Qatar’s external refinancing risks may rise, adding that it may negatively affect government budgets and lead to “higher than projected deficits”.
After the dispute, Qatar’s banks began adjusting their asset and liability management to raise liquidity and lower their dependency on short-term interbank funding.
CI predicts that all Qatari banks are “well-placed to weather” the results of the current dispute, provided the issue is not prolonged.
The effects will differ from one bank to another depending on the how each bank sources customer deposits from countries that have announced severing ties with Qatar.
S&P Global Ratings recently downgraded Qatar’s sovereign credit rating to ‘AA-from “AA”.
