Qatar asks for FX data as capital outflows pressure riyal | Reuters

* S&P cuts Qatar credit rating, citing diplomatic rift

* Riyal back near peg as central bank supplies dollars

* But other signs of financial market stress persist

* Central bank wants daily data on FX, deposits, transfers

* Outflows from loans and deposits could dwarf portfolio

By Hadeel Al Sayegh, Davide Barbuscia and Tom Finn

DUBAI/DOHA, June 8 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.

READ ---  America's opioid crisis has cut into U.S. life expectancy

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.

READ ---  Louis C.K. Opens Up About His Controversial New Film, Woody Allen Influences | TIFF 2017

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.
(Additional reporting by Tom Arnold and Saeed Azhar; Writing by
Andrew Torchia; Editing by Toby Chopra)