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Qatar's banks face a deteriorating situation due to blockade? Here’s The Truth.

A breaking news has reported that the two month long blockade imposed by Saudi Arabia led gulf countries has finally gotten the Qatar economy to the knees with Qatar banks being severely affected.

Moody’s Investors Service recently cut the outlook to negative from stable for Qatar’s banking system on Tuesday amid a continuing blockade of the country by its neighbors.

The Saudi-led group had presented Qatar two list of demands, including shutting down the Al-Jazeera news network, the closure of a Turkish base and a downgrade of its relations with Iran which Qatar has refused.

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.

Those potential outflows would reduce Qatari banks’ liquidity buffers, with domestic deposits currently tight amid lower oil revenues, the ratings agency said.

Moody’s said the main concerned was about the banks’ ability to access external funding.

“Qatari 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.”

The ratings agency has predicted that Qatar’s GDP growth to slow down to 2.4 percent this year, down from around 13.3 percent over the 2006 to 2014 period, but it added that it was the fastest within the Gulf Cooperation Council amid government spending on construction related to hosting the FIFA World Cup in 2022.

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 estimated system-wide problem loans would rise to 2.2 percent of gross loans by 2018, compared with 1.7 percent as of the end of last year.

So, is there a threat to the Qatar economy?

Qatari banks are strong enough to survive the pullout of all Gulf money and then some, according to S&P Global Ratings.

SPGR ran two hypothetical scenarios of capital flight, and concluded that Qatar’s lenders could survive the withdrawal of all Gulf deposits plus a quarter of the remaining foreign funds the banks keep.

Deposits and other funding sources from GCC countries represent about 8 percent of total liabilities of Qatari lenders or $20 billion, S&P said after examining the 2016 positions of the four biggest banks in Qatar. In the worst case, only two unidentified lenders would have to dip into their investment securities portfolio, it concluded.

“We believe the recent developments might result in an outflow of external funding for Qatari banks over the next few months, depending on how the situation evolves,” S&P Global Ratings said. In both scenarios, “the results show the rated Qatari banks to be in a decent position, on a stand-alone basis, to face a significant reduction of external funding.”

Only time will tell whether the blockade has any major effect on Qatar’s economy or not.

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