High reliance on foreign funding poses risks for Qatari banks: Moody’s

High reliance on foreign funding poses risks for Qatari banks: Moody’s

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Banks in Qatar are increasingly turning to foreign sources of funding due to a big demand for loans from projects related to the 2022 FIFA World Cup and economy diversification. However, this could potentially impact investor confidence, according to a report by Moody's Investors Service, which also observed that resident deposits have been stagnant, leading to a financing gap.

To fill the gap, Qatari banks have "turned to foreign sources of funding that are vulnerable to potential falls in investor confidence, and that could lead to rapid withdrawals and raise systemic risks," Moody's said.

While the Qatari government's willingness and ability to provide support in a crisis provides a backstop, high volumes of foreign funding create vulnerability.

Over the past four years, credit growth in Qatar averaged 9% annually against flat resident deposit growth, said Moody's. To bridge the funding gap, foreign liabilities at Qatari banks increased to a high 39% of total at the end of 2021. The banking sector's net foreign liabilities were $128 billion at end 2021, equivalent to 71% of nominal GDP1, up from 21% of GDP at the end of 2017.

Higher hydrocarbon prices increase domestic liquidity and will slow the pace of foreign funding growth, but external funding