DUBAI/DOHA: The Qatari currency came under pressure on Tuesday as Gulf commercial banks began to hold off on dealing with Qatari banks because of the diplomatic rift in the region, banking sources told Reuters.
Some Saudi Arabian, United Arab Emirates and Bahraini banks were delaying business with Qatari banks, such as letters of credit, after their governments cut diplomatic ties and transport links with Doha on Monday, accusing Qatar of supporting terrorism.
Saudi Arabia’s central bank advised banks in the kingdom not to trade with Qatari banks in Qatari riyals, the sources said. The central bank did not respond to a request for comment.
Qatari banks have been borrowing abroad to fund their activities.
Their foreign liabilities ballooned to 451 billion riyals ($124 billion) in March from 310 billion riyals at the end of 2015, central bank data shows.
So any extended disruption to their ties with foreign banks could be awkward, though the government of the world’s biggest natural gas exporter has massive financial reserves which it could use to support them.
Banks from the United Arab Emirates, Europe and elsewhere have been lending to Qatari institutions.
Gulf banking sources who declined to be named because of political sensitivities said Saudi Arabian, UAE and Bahraini banks were postponing deals until they received guidance from their central banks on how to handle business with Qatar.
“We will not take action without central bank guidance, but it is wise to evaluate what you give to Qatari clients and hold off until there is further clarity,” said a UAE banker, adding that trade finance had stalled for the time being.
The sources also said the UAE and Bahraini central banks had asked banks under their supervision to report their exposure to Qatari banks.
The UAE and Bahraini central banks did not respond to requests for comment.
Because of its financial reserves and as long as it can continue exporting liquefied natural gas, Qatar looks likely to avoid any crippling economic crisis.
But credit rating agency Moody’s Investors Service said on Monday that if trade and capital flows were disrupted, the diplomatic dispute could eventually hurt the outlook for Qatar’s debt.
Because of such worries, the Qatari riyal fell in the spot market on Tuesday to 3.6470 against the U.S. dollar, its lowest level since June 2016. The currency is pegged by Qatar’s central bank at 3.64 to the dollar.
Source: Gulf news.