Qatar banks discuss lower repo rate with central bank
DUBAI, February 5, 2016
Qatari commercial banks are discussing with the central bank the possibility of reducing its repo lending rate as low oil and gas prices tighten liquidity in the banking system, market sources said on Thursday.
The discussions are a sign of the strain on banking sectors in the Gulf as governments' energy revenues shrink, cutting the volumes of fresh money flowing into bank deposits.
The repo rate is a rate at which commercial banks can borrow from the central bank to cover temporary shortages of liquidity; the central bank buys domestic government securities from the banks and sells them back two weeks or one month later.
During the boom years in the Gulf, banks had such ample reserves of cash that they almost never needed to use repo operations. But in the last few months, more banks in Qatar have needed to do so, the market sources said, declining to be named because of the commercial sensitivity of the issue.
The problem for them is that the repo rate in Qatar is much higher than it is in other Gulf nations; it has been at 4.5 per cent since August 2011. This is proving expensive for Qatari banks and adding to the financial pressure on them.
Commercial bankers have therefore asked the central bank to cut the repo rate to between two and 2.5 per cent, the sources said, adding that the discussions had so far not produced a decision.
Contacted by Reuters, the Qatar central bank declined to comment on the issue. A source at the Ministry of Finance said: "The high rate in Qatar has been an oddity for a while, so it's not a surprise if it's narrowed. But I haven't heard anything specifically about this."
Money market rates have risen sharply as liquidity has tightened. The three-month Qatar interbank offered rate is at 1.38 per cent, up from around 1.07 per cent a year ago.
In response to the liquidity squeeze, some major banks such as Qatar National Bank, Commercial Bank of Qatar and Doha Bank have raised money in the loan market over the last several months.
But this has not entirely solved the problem. The central bank has cancelled both its monthly Treasury bill auctions this year because banks' bids to buy the bills were too high.
In an effort to ease pressure on the local banking system, the government is seeking to borrow more money overseas rather than domestically. It raised $5.5 billion through an international loan in January and is in talks with banks about an international issue of sukuk as soon as March. - Reuters
