Qatar Can Support Its Banks Through Boycott, Governor Says

(Bloomberg) -- Qatar, the gas-rich nation boycotted by three of its Gulf neighbors since June, is capable of supporting its banks with assets in the emirate's vast sovereign wealth fund and foreign currency reserves, the central bank governor said.

Stress tests routinely conducted by the central bank show the strength and efficiency of Qatari banks in the face of the “arbitrary measures” imposed by boycotting countries, Governor Abdullah bin Saoud Al Thani said in a statement on the regulator's website on Wednesday.

Qatar is being forced to spend heavily to support its banks and defend the currency's peg to the U.S. dollar after Saudi Arabia, the United Arab Emirates, Bahrain and Egypt severed diplomatic and transport links on June 5, accusing Qatar of supporting Sunni Islamists and Iranian-backed militants. Qatar has repeatedly denied the charges.

Qatar pumped almost $40 billion into the economy and financial system in the first two months of the standoff, Moody's Investors Service said on Sept. 13. The Qatar Investment Authority, which in the past spent billions on assets around the world, is also becoming a seller.

Qatar Fund Is Said to Weigh Asset Sales as It Looks Homeward

Adequate capital, the availability of liquidity and high profitability enjoyed by Qatari banks mean the lenders aren't at “high risk,” the central bank said in the statement. Broader money supply grew more than 8.3 percent in July, while the monetary base grew 1.7 percent, further signs of strength, it said.

Qatar's central bank has been telling lenders to tap international investors to raise financing, instead of mainly relying on the government, people familiar with the matter told Bloomberg in August. Qatari lenders have also been asked to keep track of foreign partners that have maintained business with them, as well as those that have scaled back lending during the boycott.

Qatar's QE Index closed 0.3 percent down in Doha on Thursday, near its lowest level since August, 2011. The gauge's 22 percent decline this year is the biggest among the world's major indexes, data compiled by Bloomberg show.

The economy is likely to grow this year at the slowest pace since 1995, according to economists surveyed by Bloomberg in August. Gross domestic product expanded 0.6 percent in the second quarter from a year earlier, compared with 2.5 percent in the January-to-March period, according to official data.

(An earlier version of this story was corrected by Moody's to clarify that economic support came from the government.)

To contact the reporter on this story: Zainab Fattah in Dubai at zfattah@bloomberg.net.

To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net, Mark Williams, Stuart Biggs, Abbas Al Lawati, Vernon Wessels.