The rating agency Moody’s Investors Service said the rift between a number of GCC countries and Qatar that erupted this week could be damaging to Qatar if other GCC countries pull money from Qatari banks, forcing it to borrow money at higher costs.
The rift between Qatar and countries including Saudi Arabia, the UAE, Bahrain and the non-GCC nation of Egypt may also dent business confidence and hit credit growth opportunities in the region if the rift persists, Moody’s said.
Moody’s has not been the first credit agency to express concern. The rating agency S&P on Wednesday not only voiced concern about Qatar butalso took action, cutting its long-term rating of Qatar by one notch to AA- from AA and adding that further downgrades could be in the offing.
The UAE, Saudi Arabia, Bahrain and Egypt on Monday broke diplomatic ties with Qatar and cut off air, sea and land access to the country over Doha’s support for "terrorist groups aiming to destabilise the region". The dispute is the most serious between GCC members since the organisation’s creation in 1981.
"The tensions with other GCC countries have come at a time when the reliance on the foreign funding has increased for Qatari banks," said Nitish Bhojnagarwala, a senior analyst at Moody’s in Dubai.
"Over the past two years, deposits from the hydrocarbon-rich Qatari government and related-entity deposits into the local banks have declined because of the fall in oil prices."
As a result, foreign funding increased to 35 per cent of total liabilities as of March 2017 compared to 23 per cent in 2014.
The rating agency said, however, that it expected the Qatari government to support banks if needed, as it did during the 2008 global financial crisis.
Moody’s downgraded Qatar’s rating last month to Aa3 from Aa2 and changed the outlook to stable from negative because of doubts about the country’s growth trajectory and its sharply rising external debt.
It said any deterioration of the domestic or regional political environment that results in disruptions to oil and gas production and/or foreign investments in the economy would be credit-negative for the country.
mkassem@thenational.ae
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