Identifier
Created
Classification
Origin
08DOHA736
2008-10-20 09:25:00
CONFIDENTIAL
Embassy Doha
Cable title:  

QATAR'S LOCAL BANKS RETAIN STRONG FUNDAMENTALS;

Tags:  EFIN EINV ECON QA 
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VZCZCXRO9303
PP RUEHDE RUEHDIR
DE RUEHDO #0736/01 2940925
ZNY CCCCC ZZH
P 200925Z OCT 08
FM AMEMBASSY DOHA
TO RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 8319
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
C O N F I D E N T I A L SECTION 01 OF 02 DOHA 000736 

SIPDIS

E.O. 12958: DECL: 10/20/2018
TAGS: EFIN EINV ECON QA
SUBJECT: QATAR'S LOCAL BANKS RETAIN STRONG FUNDAMENTALS;
PSYCHOLOGY OF INVESTMENT MAIN CONCERN

REF: A. DOHA 705

B. DOHA 710

Classified By: Ambassador Joseph E. LeBaron, for reasons 1.4 (b) and (d
).

--------------
(C) KEY POINTS
--------------

-- Qatar's sovereign wealth fund, the Qatar Investment
Authority (QIA),announced October 13 its readiness to invest
USD 5.3 billion in buying equity stakes of 10 to 20 percent
in local banks. The modalities of any prospective purchase
are still unclear.

-- Local bankers disagree over the sufficiency of liquidity
in the system, but there is consensus that Qatar is far
better insulated from global credit turmoil than the
neighboring UAE. Still, concern about the future is likely
to depress lending and slow down project finance.

------------
(C) COMMENTS
------------

-- The QIA's announcement was intended to counteract investor
nervousness which had hit the Doha Stock Market (DSM). Low
overall volumes and a psychological ripple effect make the
DSM particularly prone to volatile swings; a sell-off by
international investors has also hurt the market.

-- Local banks have strong balance sheets but ironically the
QIA may be the local party most susceptible to the global
financial crisis, due to its external investments and recent
acquisition of equity stakes in Western banks which have
subsequently lost value.

END KEY POINTS AND COMMENTS.

C O N F I D E N T I A L SECTION 01 OF 02 DOHA 000736

SIPDIS

E.O. 12958: DECL: 10/20/2018
TAGS: EFIN EINV ECON QA
SUBJECT: QATAR'S LOCAL BANKS RETAIN STRONG FUNDAMENTALS;
PSYCHOLOGY OF INVESTMENT MAIN CONCERN

REF: A. DOHA 705

B. DOHA 710

Classified By: Ambassador Joseph E. LeBaron, for reasons 1.4 (b) and (d
).

--------------
(C) KEY POINTS
--------------

-- Qatar's sovereign wealth fund, the Qatar Investment
Authority (QIA),announced October 13 its readiness to invest
USD 5.3 billion in buying equity stakes of 10 to 20 percent
in local banks. The modalities of any prospective purchase
are still unclear.

-- Local bankers disagree over the sufficiency of liquidity
in the system, but there is consensus that Qatar is far
better insulated from global credit turmoil than the
neighboring UAE. Still, concern about the future is likely
to depress lending and slow down project finance.

--------------
(C) COMMENTS
--------------

-- The QIA's announcement was intended to counteract investor
nervousness which had hit the Doha Stock Market (DSM). Low
overall volumes and a psychological ripple effect make the
DSM particularly prone to volatile swings; a sell-off by
international investors has also hurt the market.

-- Local banks have strong balance sheets but ironically the
QIA may be the local party most susceptible to the global
financial crisis, due to its external investments and recent
acquisition of equity stakes in Western banks which have
subsequently lost value.

END KEY POINTS AND COMMENTS.


1. (C) The message from Embassy Doha's banking sector
contacts continues to be that local Qatari banks are
weathering the global financial storm well (see reftels).
Over half a dozen bankers affirmed to Econoff the last few
days that the major danger in Qatar is a psychological ripple
effect from problems elsewhere, as nervous banks slow down
lending and nervous investors pull their money out of the
markets. These contacts assert that banking and business
fundamentals remain strong in Qatar, as witnessed by
continued strong profits at local banks.


2. (C) The DSM continues in the doldrums, however, with the
overall market down 19 percent this year. The market was
temporarily boosted last week when the QIA announced its
readiness to inject up to USD 5.3 billion by acquiring 10 to

20 percent equity stakes in local banks. The form of any
purchases is still unclear, and it remains an open question
whether local banks need or want the cash. Faisal Hassan, an
investment analyst at the QIA, told Econoff October 14 that
the QIA is "trying to affect market sentiments" and ensure
liquidity issues do not develop. Hassan cautioned that this
"internal move" does not represent a strategic shift in the
QIA's strategy -- which is to invest Qatar's surplus outside
the country for long-term growth -- and any local purchases
would be carefully considered and structured so as not to
"dilute the shares" of local investors.


3. (C) Reggie Fernandes, an investment manager at Commercial
Bank, told Econoff October 19 that Qatar's economy is
fundamentally strong due to its healthy oil and,
particularly, gas-based revenue stream. The main local
challenge for banks is "consumer fear and market sentiments"
which are causing investors to "sit on cash." Fernandes
expects global financial turmoil to shave a bit off Qatar's
growth this year and the market to continue to be volatile
for the next six months. Commenting on the QIA's
announcement, he noted that the understanding amongst bankers
is that capital is available to anyone who wants it and the
QIA would likely evaluate specific proposals on a
case-by-case basis. Fernandes acknowledged that "liquidity
is a potential concern" due to potential spillover effects
from tightened lending elsewhere, though he added that the
GOQ is well-poised to guarantee banks' positions should
problems develop. He expects spending and borrowing to slow
in the months ahead, though the strong cash flow of local
firms to ultimately help the economy continue on double-digit
growth.


4. (C) On October 20, Chandra Kumar, an associate investment
banker at Amwal, a Qatari investment bank, told Econoff that

DOHA 00000736 002 OF 002


the local market downturn is the result of two factors:
foreign funds being repatriated (i.e., foreign investors
cashing in their investments here to move money elsewhere)
and an "unsophisticated local investor base" which is
following a herd mentality to try and protect their assets as
they see alarming financial headlines around the world.
Kumar asserted that liquidity is "not an issue" for local
banks, even though institutions are "taking a more defensive
posture" in maintaining their positions. Specifically, banks
are starting to tighten up terms for personal loans and other
credit vehicles which have flowed freely in recent years.
The biggest effect, according to Kumar, will be a slowdown in
project finance as banks take a "wait and see approach" to
global financial conditions. Kumar concluded that the U.S.
rescue plan is being welcomed by local investment bankers,
though most analysts are left wondering how the USG decided
that USD 700 billion was the right amount to inject into the
system.


5. (C) Speaking the same day, Executive Manager for Economics
and Research at Qatar National Bank (QNB) Mohamad Moabi
assessed that Gulf banks are showing increasing signs of
caution as they try to secure their asset base. Referencing
a recent Merrill Lynch study which reported that over half of
QNB's deposit base is sourced from the GOQ, Moabi pointed out
that strong government revenue would maintain local
liquidity. Still, he noted that deposits have decreased and
there are signs of local banks actively seeking funds (such
as by increasing interest rates). Moabi concluded that
private projects already underway or government-based
infrastructure projects would not be harmed, though he
believed that increasing caution will slow down project
finance and real estate borrowing.


6. (C) Advisor to the CEO of Standard Chartered in Qatar,
Essa Al-Ebrahim, told Econoff October 19 that while local
investors and bankers are closely watching developments in
the United States, Europe, and Asia, they have not felt a
tangible pinch in local projects or liquidity. He noted that
local banks are welcoming the QIA announcement but ultimately
are in a good position due to strong oversight in the past
and a lack of exposure to toxic assets. Al-Ebrahim predicted
that Bahrain and the UAE would witness some bank mergers in
coming months, though the Qatari landscape is likely to
remain static.


7. (C) Echoing this assessment, Zahid Hussain Awan, Manager
for International Banking Services at International Islamic
Bank, told Econoff that most local banks are heavily invested
locally and face limited exposure to global problems.
Moreover, Awan noted that Islamic banks are particularly
well-positioned to ride out the turmoil as they hold
asset-based investments, and are not exposed to the
derivatives market and complicated financial instruments.


8. (C) One notable exception to the generally rosy
assessments given above was from managers at Al-Khaliji Bank,
a Qatar-based start-up. Ehsanullah Main, Senior Principal in
Corporate Banking, told Econoff that Qatar is not fully
insulated and liquidity is becoming tight, particularly for
banks without a strong government association. He did
affirm, however, that Qatar appears well-shielded from
problematic real-estate-related assets afflicting many banks
around the world. Moreover, he assessed that Qatar is
"fundamentally different" than Dubai because it lacks a real
estate investment bubble.

LeBaron