By Satish Kanady
DOHA: The lending from European banks is falling significantly in Qatar and in other GCC countries as well. Qatar saw a 19 percent drop in lending from euro area banks between 2011:Q1 and 2012:Q1.
An IMF research note, discussed at the annual meeting of Ministers of Finance and Central Bank Governors in Saudi Arabia in October, cited signs of regional retrenchment by European Banks have emerged with the debt crisis worsening in the Euro area.
Qatar, Bahrain and UAE are the three countries in the region with the highest dependence of European financing. The UAE and Qatar saw a 23 and 19 percent drop, respectively, in lending from euro area banks in Q1 2012.
The report cautioned that further deleveraging and retrenchment of European banks could lead to liquidity pressures. A sharper scaling back of European banks from the GCC is likely to affect long maturity syndicated loans since they require more expensive long-term funding sources. Given the recent increases in infrastructure spending in the region and high demand for project financing, such funding pressure would come at an inopportune moment for some GCC economies.
Linkages with global banks vary across the GCC both in terms of size and by sector. Total foreign bank claims on the GCC amounted to $328bn in the first quarter of 2012, while funds provided to global banks by the GCC amounted to $462bn.
The UAE is the main destination for foreign bank lending-40 percent of total foreign bank claims- while Saudi Arabia is the largest creditor to global banks lending-47 percent of total foreign bank liabilities.
Bahrain has the highest exposure to foreign banks with claims and liabilities exceeding well over 100 percent of GDP. However, only about 10 percent of Bahrain’s borrowing from foreign banks is directed to the non-bank sector, reflecting dominant size of its off-shore banking industry.
In comparison, foreign bank lending to Qatar and the UAE amount to about 40 and 30 percent of GDP, respectively, with over half of the inflows going to the non-bank sector in each country.
Saudi Arabia and Kuwait are considerably less dependent on foreign bank financing, but have sizable outward exposure to foreign banks.
On the share of foreign liabilities in total liabilities of commercial banks, another key measure of foreign financing exposure, the report noted Bahrain is again an outlier at over 40 percent followed by Qatar 29 percent and the UAE 17 percent.
European banks account for the majority of outstanding claims on the GCC. European bank claims on GCC economies amounted to $220bn in the first quarter of 2012-65 percent of total claims, with the UK having large presence in Qatar and UAE., while French bank lending dominated in Saudi Arabia.
The UAE accounted for the largest increase in borrowings from foreign banks while Saudi Arabia accounted for the largest increase in lending to foreign banks. As the global financial crisis spread to the GCC, however, flows to and from global banks came to a standstill or reversed.
Despite the recovery in oil prices in 2010-11 and the strengthening of GCC economic indicators, foreign bank lending to the GCC has on aggregate declined by 5 percent since September 2008.
Foreign claims on Kuwait and Bahrain have fallen over 55 percent and 25 percent, respectively. In contrast, foreign bank liabilities to the GCC have recently regained momentum as higher oil prices have strengthened external balances. Qatar stands out with a tripling of claims on foreign banks since September 2008.
The Peninsula
