Why Qatari Banks Are Facing Downgrades?

Moody’s has recently announced that it has downgraded two Qatari banks. This was to be expected since Qatari lenders have been struggling with reduced profitability as well as deterioration in asset quality. There are a few reasons for the downgrade, as follows.

The private sector deposits made in Qatari banks decreased by 8.1% year-on-year and was at just $126.8 billion back in April. The fact is that private sector deposits in the country had been affected by the boycott that has been placed on Qatar. The impact of that boycott, in place since June 2017, is being felt as the time goes on.

Just 2 months previously, the International Monetary Fund had stated that banks based in Qatar had lost around $40 billion in a variety of foreign funds as a result of the boycott. This included non-resident and resident deposits, interbank placements and private sector deposits. Additionally, deposits from the private sector witnessed a decline of 0.9%, a reduction from $127.9 billion.

The rapid deterioration of the economy has caused several global banks to avoid dealing in the international bonds that are being offered by the central bank of Qatar. As such, they will need a different way to offset their losses incurred by declining foreign deposits as well as the repercussions of this boycott. In fact, the Qatari government was forced to pour in over $40 billion into their domestic economy as well as banking system to counter the outflow of the deposits.

The ratings of the Qatari financial institutions and banks are continuously declining. This is possibly a sign that a major catastrophe is heading towards the Qatari economy. As per international reports, the poor economic conduction in the nation is starting to affect the economy.

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