A general view of Qatar Central Bank in Doha. Picture: REUTERS
A general view of Qatar Central Bank in Doha. Picture: REUTERS

Dubai — Foreign deposits at Qatar’s banks fell the most in almost two years in June as customers withdrew funds following a diplomatic row with four Arab nations led by Saudi Arabia.

Nonresident deposits with the 18 lenders in the world’s biggest liquefied natural gas exporting nation dropped 7.6% to 170.6-billion riyals ($47bn) in June from a month earlier, according to data posted on the Qatar Central Bank’s website on Wednesday. The decline is the biggest since November 2015, the data show. Overall deposits climbed 1.1% in June helped by a jump in domestic funds.

Saudi Arabia, the United Arab Emirates (UAE), Bahrain and Egypt cut ties with Qatar on June 5, accusing it of supporting extremist groups. Qatar denies the charge and says the move is an attempt by Saudi Arabia to impose its will on smaller nations in the Gulf.

Qatar Investment Authority, the country’s sovereign wealth fund, has placed billions of dollars in deposits in local banks since then to shore up liquidity and soften the blow, people familiar with the development said last month.

Efforts to resolve the standoff between Qatar and the Saudi-led alliance reached an impasse

"Qatar’s domestic liquidity was expected to come under pressure due to the diplomatic rift, given that Qatar banks have grown more reliant on external funding in light of lower energy prices," said Carla Slim, an economist at Standard Chartered.

The slide in nonresident holdings, which account for 22% of overall deposits, comes even after local lenders raised interest rates to try and attract foreigners. The Qatar three-month interbank offered rate, a benchmark used to price some loans, climbed to 2.52% on July 17, the highest since at least September 2010, when Bloomberg began collecting the data.

Overall bank credit within Qatar fell 0.6% in June to 780-billion riyals, according to the data. Qatar has a $200bn spending plan in preparation for the 2022 football World Cup.

Efforts to resolve the standoff between Qatar and the Saudi-led alliance reached an impasse, a Gulf official with direct knowledge of the matter said, amid signs the bloc wants to extract more concessions from Doha. Saudi Arabia, the UAE, Bahrain and Egypt had yet to respond to proposals by the US and the UK that aimed to start direct talks, the official said.

Bloomberg

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