Qatar’s cenbank asks for FX data as capital outflows pressure riyal – Qatari bonds extend losses after S&P downgrade, CDS rises

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DUBAI/DOHA, June 8, (RTRS): Qatar’s central bank has asked commercial banks to provide it with detailed information on foreign exchange trading, banking sources told Reuters on Thursday as Doha’s diplomatic rift with other Gulf states put its currency under pressure.

The riyal hit an 11-year low of 3.6530 to the dollar late on Wednesday after Standard & Poor’s cut Qatar’s credit rating, citing this week’s decision by Saudi Arabia and the United Arab Emirates to sever diplomatic and transport ties with Doha.

The dispute, over Saudi and UAE charges that Doha supports terrorism, triggered outflows of capital from Qatar which, if they persist, could eventually make it harder for authorities to maintain the riyal’s peg of 3.64 to the dollar.

The central bank’s move to gather data on the currency market was in response to this concern, Qatari commercial bankers said.

“We now consider risks to external financing lines to the whole economy, including foreign direct investment, portfolio flows and to the financial sector, to be elevated, and this could lead to pressure on Qatar’s pegged monetary arrangement,” said S&P.

The sources said banks in Qatar were asked to provide daily information on their foreign exchange trading, a daily statement of withdrawals and transfers from deposits worth at least 10 million Saudi riyals ($2.7 million), and daily data on cash withdrawals and deposits.

Previously, banks were generally required to provide such information monthly.

The central bank also asked banks to supply on a weekly basis a breakdown of their customer deposits by maturity and type from Gulf Cooperation Council countries, Egypt and other countries, the sources said. The central bank did not respond to requests for comment.

The riyal rebounded to trade much closer to its peg in the spot market on Thursday; some traders said the central bank was supplying dollars to banks which wanted to close out their riyal positions, in order to avoid downward pressure on the currency.

“There’s some stress in the Qatari riyal currency market but it’s too early to talk about pressure on the Qatari peg,” said a UAE treasury banker, who like most bankers declined to be named because of political sensitivities.

S&P estimated the government’s liquid external assets were worth 170 percent of gross domestic product, a massive amount equivalent to nearly 10 years of the country’s imports — a much higher degree of backing for its currency than most countries.

Nevertheless, there were other signs of tension in Qatari financial markets on Thursday. The riyal remained under pressure in the offshore forwards market, which banks use to hedge against future moves in the currency.

The cost of buying insurance against a Qatari sovereign debt default hit a seven-month high, and the cost of borrowing three-month riyal funds in the interbank market jumped to 2.16 percent, the highest in at least several years — a sign nervous banks were holding back funds.

A major source of capital outflows from Qatar so far has been the stock market, which plunged 9.7 percent over three days before partially rebounding on Thursday. Some foreign portfolio managers sold stocks and sent the proceeds home.

In addition, some banks in Saudi Arabia and the UAE are closing out Qatari riyal long positions and offloading part of their riyal assets to reduce their risk.

While Riyadh has told its banks it does not want them to do new business with Qatari institutions, neither Saudi Arabia nor the UAE has yet clarified whether banks will be required to liquidate existing deals. Some bankers are cutting exposure now to limit the pain if they are forced into a firesale of assets.

Other banks in Saudi Arabia and the UAE have halted all transactions in the Qatari riyal, viewing them as too risky, although some remittances of money between the UAE and Qatar were continuing on Thursday, bankers said.

A much bigger threat to the Qatari riyal than outflows from the stock market is the risk of an exodus in coming weeks and months from loans and deposits provided by foreign banks to Qatari banks. Foreign liabilities of Qatari banks increased to 451 billion riyals ($124 billion) in March from 310 billion riyals at the end of 2015.

Qatari sovereign dollar bonds extended losses on Thursday to approach three-month lows and the cost of insuring exposure to the kingdom’s debt rose to the highest level since mid-November, after a credit ratings downgrade.

The Eurobond maturing 2026 fell 0.7 cents, according to Tradeweb data, to 97.7 cents in the dollar, the lowest level since mid-March.

The 2027 dollar-denominated bond of Qatar’s Ras Laffan Liquefied Natural Gas Company fell 1.5 cents to 111.5 cents in the dollar.

Data from IHS Markit showed five-year credit default swaps (CDS) for Qatar widened out 3 basis points (bps) from Wednesday’s close to 92 bps, a seven-month high.

S&P Global cut its rating by one notch to AA- from AA and put it on CreditWatch with negative implications, meaning there is a significant chance of a further downgrade.

The move came after several Arab countries including Saudi Arabia and United Arab Emirates severed diplomatic relations with Gulf Cooperation Council (GCC) member Qatar while also suspending air, land and sea transport and imposing travel bans.

Five year CDS for Saudi Arabia also rose 3 bps from Wednesday’s close to 100 bps, the highest since end-March.

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