(MENAFN- Gulf Times) Qatar banks' interbank deposits, which are“potentially more volatile”, have increased over the past 15 months, reaching QR217.5bn at the end of March 2023 against QR164bn in 2021, according to Standard and Poor's (S&P).
Moreover, Qatar banks' domestic resource mobilisation growth is contingent upon the government's new investments; S&P said a report.
Finding that the Qatari lenders have the highest recourse to external funding among the GCC or Gulf Co-operation Council banks; it said the system's loan-to-deposit ratio reached 124% at March 31, 2023, or 152% at the same date if factored only the resident deposits and loans.
"This resulted in an overall funding gap (total domestic loans minus total resident deposits) of $112.4bn, equivalent to almost two times the public sector deposits," it said.
Although the Qatari banks benefit from geographical funding diversification, some of these external sources are less stable, it said, adding at the end of March 31, 2023, the equivalent of almost two-thirds of the domestic funding gap was covered by capital markets and due to branches and head offices, while the remainder was covered by interbank deposits, which the rating agency sees as "potentially more volatile."
"We also note that the contribution from this source has increased over the past 15 months, reaching QR217.5bn at March 31, 2023, compared to QR164bn at year-end 2021," S&P said.
The rating agency views that the Qatari authorities are highly supportive of their banking system and the strong track record in providing such support are mitigating factors.
In this regard, it observed that when the banking system lost about $20bn of external funding (due to Gulf crisis), it was more than compensated by twice that amount in the form of government and related entity deposits.
"Amid scarcer and more expensive global liquidity, we expect Qatari banks to continue mobilising domestic resources to meet future growth. However, we do not expect the latter to materially pick up until a major new investment programme is implemented by the government," the report said.
S&P found that funding risk is a prominent topic among investors in the GCC banks, particularly as the regional transitions from cheap and abundant liquidity to a more restrictive environment.
Major central banks have made it clear that interest rates will be higher for longer, implying that the liquidity will be scarcer and more expensive.
"This could significantly affect banking systems in emerging markets," it said, suggesting that the availability of a well-functioning domestic debt capital market can make a "significant difference" for the GCC banking sector's funding opportunities.
In terms of relative stability, funding sourced from the domestic debt capital market tends to be more stable than cross-border funds, but less stable than core customer deposits, according to S&P.
"Having a broad and deep local debt capital market can therefore help a banking system reduce its dependence on external funding and ease concentration and maturity mismatches," it said.
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