Qatar lending to slow while borrowing costs rise

Published May 9th, 2012 - 11:38 GMT
The three-month Qatar Interbank Offered Rate rose 12 basis points this year to 1,292.86 per cent on May 2
The three-month Qatar Interbank Offered Rate rose 12 basis points this year to 1,292.86 per cent on May 2

Qatari banks' local-currency borrowing costs rose to the highest in more than 15 months amid signs bank funding levels may restrain a lending surge in the Arab country preparing to host the 2022 soccer World Cup.

The three-month Qatar Interbank Offered Rate rose 12 basis points this year to 1,292.86 per cent on May 2, the highest level since January 26, 2011. The rate, which reflects how much banks charge to lend to each other, was 1,264.29 per cent yesterday. A surge in project financing in the world's top exporter of liquefied natural gas sent the loan-to-deposit ratio to 115 per cent in March, the highest in the six-nation Gulf Cooperation Council (GCC), central bank data show.

Unless deposit growth accelerates, the data suggest the lending boom may lose momentum in a nation set to invest about $100 billion on infrastructure ahead of the World Cup finals, say analysts including Dubai-based Aybek Islamov of HSBC Holdings. "The reason why the liquidity is tightening is that we had a very strong loan growth and the deposits were falling behind," Islamov said by phone.

"So as a result, given that the funding position of the sector is a bit stretched, it will be natural to see some slowdown in lending growth." Loan growth slows Annual loan growth to private businesses slowed for a second month to 15 per cent in March, from 21 per cent in January, central bank data show.

Total deposits declined to 348.4 billion riyals ($96 billion) in March from 363.6 billion riyals in December, the data show. While Qatar pegs its currency to the US dollar at 3.64, the spread between the three-month interbank rate and the equivalent London Interbank Offered Rate widened 21 basis points this year to 80 basis points yesterday, data compiled by Bloomberg show.

Tighter funding conditions come as the government sells treasury bills for the first time in an effort to deepen local- currency debt markets. The central bank sold 14 billion riyals in treasury bills through the end of March, Governor Sheikh Abdullah Saud Al Thani said in a speech April 16. The central bank, which issued 4 billion riyals of securities last month, will hold its monthly treasury-bill auction today.

Funding tightens "The growth in lending and the central bank's sale of T- bills increase the demand for funds from Qatari banks, which tightens liquidity conditions," Nick Stadtmiller, head of fixed-income research at Dubai-based Emirates NBD, the United Arab Emirates biggest bank, said in an e-mailed response to questions. One-year currency forwards on the Qatar riyal were little changed at 3.6463 a dollar yesterday.

The rate fell to 36,511 a dollar on March 6, the lowest in more than 17 months, after banks oversubscribed to the central bank's treasury bill issuance that day. The March movement in forwards "was sort of a panic spike," Stadtmiller said. "The market became concerned about liquidity in Qatar after the central bank stated that they have been selling a significant amount of local-currency T-bills to drain liquidity."

Qatar's loan-to-deposit ratio, excluding overdrafts, has exceeded 100 per cent in every month since October. It was 115 per cent in March, up from 98 per cent a year earlier, and compared with less than 80 per cent in Saudi Arabia. The largest Arab economy is investing more than $500 billion to develop infrastructure and industry, thereby helping to boost commercial bank loan growth to a three-year high.

© Muscat Media Group

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