Qatar’s clearing and settlement system has not faced any liquidity stress in 2019, even as the country’s central bank withdrew "auto loans" (overnight credit facility) for the banks to provide liquidity for squaring off their end-of-day position.

In payment systems, one bank's payment is another one's liquidity and hence a failure of a participant in meeting the payment obligations may affect the liquidity position of other participants, demand for money and loss of confidence in the payment and settlement system itself, the Qatar Central Bank (QCB) said in its 11th financial stability report.

Highlighting that the requirement of intraday credit (IDC) by the banks on a frequent basis indicates the liquidity stress on the system; the QCB report said the daily IDC provided to banks remained "very low" compared to the total amount settled in the system for most of the days.

Stressing that the usage of IDC marginally declined in 2019, during which about 11% of the payments were settled using IDC against 13% in 2018; the QCB said "from the overall analysis, it can be concluded that the clearing and settlement system did not face any liquidity stress during 2019."

Although the IDC extended to the banks get reversed automatically during the clearing window when the banks received incoming payments, some banks may face shortfall in their settlement account. The QCB used to provide liquidity facility by way of an overnight credit facility or 'auto loans' to square off their end-of-day position.

After it stopped "auto loans" in July 2019, aligning with the international best practices, the central bank allowed an extended window of 30 minutes from the close of business hours of payment system for the banks to meet the shortfall in their sentiment accounts.

With this decision (to stop ‘auto loans’); "the member banks are now expected to actively manage their liquidity positions and thereby enhance market discipline," the QCB said.

The size of the payment systems in Qatar surpassed QR4.3tn in 2019 and the volume of transactions exceeded 135mn. In transaction value, customer payments accounted for 48% of the total payments, central bank operations (32%) and other interbank payments (20%). In volumes, the customer payments accounted for more than 99% of the total payments.

On the liquidity concentration risk, when liquidity is concentrated in the hands of few banks — by virtue of consolidation, specialisation or cost structure; the QCB said the index remained in the low to medium concentration region except for five days during 2019.

In the case of payment concentration risk in the banking system, it as "insignificant" during 2019, the report said, adding the value of the index remained range-bound, but well within the medium range; indicating that low risk of payment concentration risk existed during 2019.

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