The Qatari Central Bank is facing increasing difficulties in borrowing from international markets

High cost of debt 63% of global levels due to reluctance of lenders

Date of publication: Wednesday 23 August 2017

Yousef Al-Bastanji (Abu Dhabi)

Qatar Central Bank’s borrowing from the market in the form of short-term “treasury bills” rose to unprecedented levels in August, reaching 2.14% for 3 months, increasing by 63% over the average cost of borrowing for the same periods in the markets International.

Official country data released yesterday revealed the reluctance of international institutions to lend to the Qatar Central Bank the same interest rates as other borrowers in global markets, which are only 1.31 percent for the same periods.

Data from Qatar’s central bank showed that compared with the average cost of borrowing in the international markets of the currency linked to the Qatari riyal, measured by the Libor rate, which is the interbank Offered Rate in London, The price of borrowing for the Central Bank of Qatar for the same periods is about 83 basis points higher than what is applied, ie the cost of borrowing is 63% higher than the average international market price of the same value.
Economic analysts said the rise in the borrowing cost of the country’s central bank reflects the difficulties faced by the country’s banking sector, with the withdrawal of investments and deposits from Qatari banks, the lowering of global ratings, and the central bank’s request from Qatari banks two days ago to borrow from markets. As a result of its difficulties, both in securing liquidity and in continuing to support liquidity in banks.

According to analysts, raising the interest rate on the “treasury bills” issued by the Qatar Central Bank, also reflects the real fears of the bank, the possibility of the collapse of the riyal exchange rate in light of the monetary difficulties faced by the country.

The data also showed that the bank’s borrowing cost for 3 months was 30 basis points over the past two months. The central bank’s interest rate for the creditor banks was 2.14% in August on Treasury bills, compared with 1.85% Itself and for the same borrowing periods in June 2017.

High cost of imports

The cost of borrowing for the Central Bank of Qatar and the Doha government is rising as a result of the downgrade of international rating agencies, whose ratings are based on a number of financial and monetary standards and standards to determine the levels of risk for creditors, Dr. Ali Abu-Rahma, Dean of the Faculty of Business Administration at Abu Dhabi University, said. Intending to borrow.
Abu Rahma pointed out that the low rating means higher risk, which entails a rise in the interest rate on loans required for that entity.

He pointed out that the high demand for liquidity in the Qatari market also comes as a result of the high cost of imports of goods that have become very high shipping costs, which is accompanied by an increase in the cost of exports for the same reason, which constitutes a severe pressure on the balance of foreign trade and thus the current account And then the balance of payments.

“These factors raise the demand for domestic liquidity, as banks and Qatari banks are increasingly committed to foreign banks operating in Qatari-exporting markets than Qatari banks from foreign banks as a result of exports,” he said.

For this reason, deposits in the Qatari banking sector declined during the last two months, in addition to other reasons, such as the departure of many residents from companies, institutions and individuals who withdrew their deposits from banks. This prompted the Central Bank to borrow at a much higher cost than the average cost of borrowing on the international market. Securing the necessary cash as soon as possible and injecting the required liquidity into the banks.

He pointed out that the bank or a company or government or any party to raise the interest rates offered to obtain the necessary funds and liquidity, is an indication at the same time that this entity is in dire need of funds as soon as possible, in addition to other factors referred to.

Deteriorating financial conditions

“The Qatari Central Bank’s call to local Qatari banks to borrow from international banks comes as a result of a number of challenges facing the Qatari economy,” said Reda Musallam, chief executive of Truth Economic Consulting. Qatari business to head to the international financial markets to provide the necessary liquidity to manage Qatar’s various economic activities.

He pointed out that this call by the monetary policy makers in Qatar comes for several reasons, especially the decline in deposits of Qatari banks (deposits of individuals or sovereigns and investment funds) during the month of July 2017 to 157.2 billion riyals, after registering a previous decline of about 170.6 billion riyals In June 2017, a decline of about QR 13.4 billion, in addition to the decline of the central bank reserves sharply, which negatively affects the international financial centers and the downgrade of credit rating, as Moody’s lowered its view of the classification of nine country banks to negative, after a day One of the reduction of the outlook for the future T to negative.

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