Moody’s Puts Qatar Banks on Negative Watch

Qatar’s dispute with its Persian Gulf Arab neighbors has hit the country’s banking sector as rating agency Moody’s Investors Service changes its outlook from stable to negative.

The agency said that if the current rift between Qatar and its neighboring Persian Gulf Arab countries is prolonged, it could trigger outflows of foreign deposits and other external funding. This could lead to the banking sector’s high liquidity buffers reducing, Reuters reported.

“Against this backdrop, Qatari banks’ profitability will likely decline, with return-on-assets declining to around 1.4% for 2017, from 1.6% in 2016, driven by increases in funding and provisioning costs,” said Nitish Bhojnagarwala, a vice president at Moody’s.

In June, Saudi Arabia and a number of other Arab countries imposed sanctions on Qatar after accusing the Persian Gulf Arab state of supporting extremism and fueling instability in the region. The Arab states say that the sanctions can be lifted if a series of conditions are met. Qatar has so far refused to comply with their demands.

The lack of a resolution and continued uncertainty threatens to undermine Qatar’s economic diversification plans, the report said.

The rating agency said the banking sector’s outlook also worsened due to weakening operating conditions and the continued funding pressures the banks face.