Saudi central bank warns lenders on Qatar exposure

Bloomberg

Fri, Jun 09, 2017 - Page 10

Saudi Arabia’s central bank has ordered lenders in the country not to increase their exposure to any Qatari clients amid the worst crisis in relations among the Gulf Arab monarchies in decades, people familiar with the matter said.

The Saudi Arabian Monetary Agency (SAMA) also told banks that they should not process any payments denominated in Qatari riyals, the people said, asking not to be identified because the information is private.

The order to refrain from increasing exposure to Qatar is being applied to include Treasury investments, loans, letters of credit and trade-finance facilities, the people said.

Saudi Arabia is among countries including the United Arab Emirates (UAE), Egypt and Bahrain that have blocked transport routes with Qatar, accusing the country of destabilizing the region by supporting proxies of Shiite Muslim Iran and the Sunni militants of al-Qaeda and the Islamic State group.

Some banks in Saudi Arabia, the UAE and Bahrain have already begun cutting their exposure to Qatar, other people said on Wednesday.

SAMA officials did not immediately respond to requests for comment.

Central banks in Saudi Arabia, the UAE and Bahrain were this week said to have asked lenders to provide details of their exposure to Qatari clients.

Banks have also been requested to share information about exposure to Qatar through products such as equities, bonds and interbank funds, other people said.

Kuwait’s central bank — which is not part of the group of countries that severed ties with Qatar — is said to have asked banks to disclose their exposure to Qatar.

Qatar’s stock exchange has slumped, while its sovereign bond yields climbed as investors were spooked by the diplomatic dispute.

The Doha Securities Exchange has dropped almost 8 percent since the measures against Qatar began on Monday morning, while the yield on the government’s 2026 bonds climbed to 3.53 percent, its highest since March.

The cost of insuring Qatar debt also soared, with five-year credit default swaps for Qatari bonds rising to the highest level since Dec. 2, according to data compiled by Bloomberg.

S&P Global Ratings has lowered Qatar’s long-term rating by one level and put it on negative watch on concern the nation’s row with other Arab nations will weaken its finances.

Qatar’s grade was cut to “AA-” the fourth-highest investment grade, but its “A-1+” short-term rating was affirmed.

The tension between the Arab nations “will exacerbate Qatar’s external vulnerabilities and could put pressure on its economic growth and fiscal metrics,” S&P said in a statement on Wednesday.

“Qatar’s fiscal and current account deficits could widen as related revenues from regional trade diminish,” it said.

Given the uncertainties regarding Qatar’s response and the measures that may be imposed, S&P will assess the impact of the diplomatic spat by its next scheduled review on Aug. 25.

The downgrade comes less than two weeks after Moody’s Investors Service reduced the nation’s rating because of its rising debt and uncertainty over its economic growth model.