Moody’s Investors Service cut the outlook for Qatar’s banking system to negative on Tuesday as the blockade continue. Qatar has been under a blockade since June.
The Saudi-led bloc had presented Qatar a list of 13 demands to resolve the crisis, bit it was rejected by Qatar and called the list illogical.
Moody’s pointed to weaker operating conditions and continued funding pressures for Qatar’s banks.
“A prolonged regional dispute could trigger some outflows of foreign deposits and other external funding,” Moody’s said in a press release, noting that those funds accounted for around 36 percent of total system liabilities as of May.
The potential outflows would bring down Qatari banks’ liquidity buffers, with tight domestic deposits amid lower oil revenues. Moody’s revealed that it was worried about the banks’ ability to access external funding.
“Qatar banks’ reliance on confidence-sensitive external funding has increased in recent years due to a significant decline in oil-related revenues” Nitish Bhojnagarwala, vice president at Moody’s, said in a statement. “This leaves them vulnerable to shifts in investor sentiment.”
It also expected the nation’s GDP growth to slow down to 2.4 percent this year, from 13.3 percent over the 2006 to 2014 period. However, it also added that it was the fastest within the region.
Moody’s said the slowing economy would weigh on credit growth and asset quality.
“The gradual economic slowdown, combined with Qatar’s ongoing dispute with some neighboring countries and continued challenges in the construction and contracting sector, will lead asset quality to dip slightly,” it said.
It was estimated that the system-wide problem loans would rise to 2.2 percent of gross loans by 2018, compared to 1.7 percent as of the end of last year.