Qatar’s banking system needs no further support from the central bank and sovereign wealth fund as the decline in non-resident liabilities of lenders have subsided, according to the International Monetary Fund (IMF).
Moreover, high frequency financial indicators, following the initial deterioration, are improving, IMF said, indicating the resiliency in Doha’s monetary system in mitigating the risks of the nine-month Gulf crisis brought about by the continuing economic blockade imposed by the siege countries.
“The decline in non-resident liabilities of banks has abated, averting the need for further support of the Qatar Central Bank (QCB) and the Qatar Investment Authority (QIA) to the banking system, as banks mobilise funding from other (non-Gulf Cooperation Council) sources,” the IMF said in the Article IV consultation with Qatar.
Cautioning that an escalation of the diplomatic rift could adversely affect external funding and growth, the report said although banks’ balance sheets can withstand sizeable shocks, financial buffers at the disposal of the authorities can provide additional support, if needed.
“The acceleration of structural reforms will be important to ensure that the economy remains competitive and attractive for investment," it said.
While the QCB's liquidity injections and increased public-sector deposits have helped mitigate the funding pressures on Qatari banks in the wake of the diplomatic rift, the banking system has to adjust to a new funding model, the IMF said.
Highlighting that a robust regulatory framework and effective supervision have helped ensure the resilience of the financial system, the IMF said the QCB is further strengthening its financial sector surveillance to detect in a timely fashion emerging pressures, including those related to liquidity, real estate sector, the impact of US monetary policy normalisation and the on-going Gulf crisis.
Stressing that Basel IV norms, once adopted, will significantly increase risk-weights, thereby impacting banks’ capital ratios, credit risk management, pricing, processes and disclosure, the IMF said the "QCB could undertake an impact study of Basel IV on banks’ capital adequacy ratios to inform the appropriate speed of its implementation."
Deepening domestic financial markets, especially government and corporate bond markets, should be a priority reform area to support non-hydrocarbon private sector growth, according to the report.
The peg to the US dollar continues to serve Qatar well, providing a clear and credible monetary anchor. Nevertheless, the exchange rate regime should be periodically reviewed to ensure it remains appropriate as the economy moves towards more diversified export structures.
Finding that the external position is moderately weaker than the level that would be consistent with sufficient saving of Qatar’s exhaustible resource revenue, it however, said with gradual fiscal adjustment, the estimated current account gap could be closed in the medium term.
The reserves are considered to be broadly adequate in view of the size of the sovereign wealth fund, the IMF added.