Dubai, London: Some banks in Saudi Arabia, the United Arab Emirates and Bahrain are cutting their exposure to Qatar amid concerns of a widening of the blockade on the gas-rich Gulf state, people familiar with the matter said.

Some lenders in these countries have started withdrawing deposits from Qatari banks and stopped trading riyals and bonds, the people said, asking not to be identified because the matter is private. One possibility of the deepening of measures against Qatar could be the imposition of financial sanctions, the people said.

Tensions between Qatar and its neighbours are escalating after Saudi Arabia, Bahrain, Egypt and the UAE on Monday broke diplomatic relations with their neighbour and closed transport routes. The unprecedented move aimed to punish Qatar for ties with Iran and Islamist groups in the region.

Other banks are monitoring developments between the countries and haven’t liquidated their holdings in Qatar yet, two other people said. These lenders will decide whether to extend or withdraw deposits and other facilities when they mature, they said.

Ramifications

“The broadening of financial sanctions could have ramifications as the leading Qatari banks such as Qatar National Bank rely heavily on foreign funding, which could cool down its credit boom,” Arqaam Capital Ltd. analysts Jaap Meijer and Michael Malkoun said in a June 6 report. “However, only 4 per cent of QNB’s deposits come from the four countries, excluding QNB Egypt, which is a stand alone operation.”

Central banks in Saudi Arabia, the UAE and Bahrain asked lenders to reveal their exposure to Qatari clients, people familiar with the matter said on Tuesday. Banks have been asked to share information on inflows and outflows, as well as details on equity, bonds, swaps, interbank funds and custody operations.

Payments in UAE banking system normal, central bank says

Dubai: Payment and remittance transactions in the UAE financial system are operating as normal, the central bank said on Wednesday after the UAE’s diplomatic rift with Qatar caused uncertainty over some banking deals.

The UAE financial system is positioned to support normal transactions and the central bank will continue to closely monitor the situation and any developments, taking any necessary steps to maintain stability, the central bank said in a statement carried by official state news agency WAM.

Some Gulf banks are starting to hold off on business with Qatari banks after the governments of the UAE, Saudi Arabia and Bahrain cut diplomatic ties and transport links with Doha on Monday, accusing Qatar of backing terrorism.

Among other things, banks are uncertain whether existing transactions with Qatari institutions will have to be wound up.

The UAE Central Bank statement carried by WAM did not address this issue.

— Reuters