Well, stocks in Qatar fell another ~2% today, extending last week’s 7.1% plunge.
Simply put, the news was just bad all the way around.
The UAE central bank instructed financial institutions to freeze accounts and deposits tied to individuals and entities identified last Thursday as either being “terrorists” themselves or otherwise having links to terrorists. Bahrain’s central bank implemented similar measures.
The UAE central bank also told banks to adopt “enhanced due diligence” to accounts tied to six Qatari banks: Qatar Islamic Bank, Qatar International Islamic Bank, Barwa Bank, Masraf Al Rayan, Qatar National Bank, and Doha Bank. Five of those are listed.
“Although the UAE stopped short of a blanket ban on dealings with Qatar, its move could have much the same effect if UAE banks – and perhaps those in other countries – reduce their exposure to Qatari institutions for fear of getting caught in the diplomatic crisis,” Reuters wrote this morning.
Meanwhile, we got the following from S&P (which downgraded Qatar last week):
- S&P: CRISIS MAY CAUSE OUTFLOW OF QATAR BANKS EXTERNAL FUNDING
- S&P: AVG TENOR OF QATAR BANKS EXT. DEBT IS RELATIVELY SHORT
- S&P: GCC CONTRIBUTES ABOUT 8% OF QATAR BANKS’ EXTERNAL FUNDING
For those who missed it, here’s Goldman’s take on that:
Qatari banks remain reliant on external funding including deposits from the rest of the GCC. Lack of access to funding from the GCC and/or redemptions is a risk especially given the tight domestic liquidity situation in Qatar. As of April, the loan-to-deposit ratio in the sector was 112%, with the domestic L/D ratio above 130%. Indeed non-resident deposits constitute c.25% of total deposits. Among the banks we cover, QIB has the highest funding exposure to other GCC states, while QNB has the highest total international exposure.
Overall we see the following implications for Qatari banks: (1) net interest margin is likely to come under pressure as funding costs increase with potential disruption of access to deposits and interbank liquidity from other GCC banks, (2) volume growth is also likely to be under pressure given the potential strain on funding, (3) if there are supply shortages of food and consumer items, it would likely push up inflation and can have implications for retail asset quality, and (4) difficulty in accessing the funding market and/or higher cost of funding can impact corporate asset quality. It is unclear at this stage for how long these restrictions against Qatar will last. The longer the restrictions last, the more pronounced the impact on economic activity, banking sector liquidity and asset quality.
“Qatari banks have about 60 billion riyals ($16.5 billion) in funding in the form of customer and interbank deposits from other Gulf states,” Reuters went on to write on Sunday, citing SICO Bahrain estimates. “The banks account for just over half the Qatari stock market’s value.”
Perhaps more worrisome, exchange houses are facing a dollar shortage. Here are a few passages from a separate Reuters piece:
Shortages of U.S. dollars hit money exchange houses in Qatar on Sunday, making it harder for worried foreign workers to send money home, as foreign banks scaled back business with Qatari institutions because of the region’s diplomatic crisis.
“We have no dollars because there is no shipment or transportation from the United Arab Emirates. There is no stock,” said a dealer at the Qatar-UAE Exchange House in Doha’s City Center mall. “The shipment is blocked from the UAE.”
Several other exchange houses in Doha also told Reuters they had no supplies of dollars. At Qatar-UAE Exchange, dozens of people – some of the foreigners who comprise nearly 90 percent of the population of 2.6 million – waited quietly in line to change money or make remittances to their home countries.
“I spoke with my wife this morning. She said, ‘Send your savings to me now.’ I am not panicked but my family are scared,” said John Vincent, an air-conditioning repairman from the Philippines.
Predictably, an opportunistic Iran is stepping in to assist, just as we and others suggested they would (see here). Five Iranian planes stuffed with fruit and legumes landed in Doha on Sunday. Iran says it will send 100 tons of food every day to help Qatar circumvent the GCC blockade. For a full list of sanctions, see here.
“So far five planes carrying vegetables have been sent to Qatar, each carrying around 90 tonnes of cargo, while another plane will be sent today,” Iran Air spokesman Shahrokh Noushabadi told AFP. “We will continue deliveries as long as there is demand.”
Not to put too fine a point on it, but if your goal is to counter Iranian influence in the region, the last fucking thing you want to do is create instability. Just look at Iraq: it’s an Iranian client state at this point, and that’s the direct result of outside forces creating chaos. So you know, Riyadh should probably keep that in mind before this thing spirals even further out of control, although as we’ve been keen on pointing out, a little less Saudi Arabia and a little more Iran probably wouldn’t be such a bad thing, contrary to what the Western press will tell you.
In any event, the situation is fluid – to say the least. For those interested in a visual summary of the market carnage, here are a half dozen charts from Bloomberg…