Qatar Islamic Bank offers certificates of deposit after Q2 outflow

DUBAI – 6 August 2017: Qatar Islamic Bank (QIB) aims to boost its deposit base by offering certificates of deposit in Qatari riyals and U.S. dollars, after it was hit by an outflow of money due to sanctions against Qatar by neighboring Gulf countries.

The bank said on Sunday that it was offering one- and two-year CDs in its second series of such paper. Its first series was launched in December 2015.

Saudi Arabia, the United Arab Emirates and Bahrain cut diplomatic and transport ties with Qatar on June 5, accusing it of supporting terrorism. This prompted some firms and individuals from those states to pull money from Qatari banks.

As a result, deposits in Qatari banks shrank 1.8 percent from the previous month in June. QIB was particularly hard hit, with its customer deposits falling to 96.9 billion riyals ($26.6 billion) at end-June from 103.9 billion riyals at end-March, according to its financial statements.

QIB's new two-year CDs offer a rate of 3.75 percent for riyal-denominated paper and 2.75 percent for dollar paper. Those rates are 1 percentage point higher than rates offered for similar paper in QIB's first CD series in 2015.

Central bank data indicates Doha's sovereign wealth fund and possibly other government institutions deposited over $10 billion in local banks during June to offset the impact of deposit withdrawals, although it was not revealed whether QIB obtained some of those funds.

QIB’s chief financial officer, Gourang Hemani, told Reuters that the CD offer was a regular business product which the bank offered to its clients.

Redmond Ramsdale, senior director in the banks team at Fitch Ratings, said Qatari banks were doing their best to prop up their funding profiles.

"A lot of this is due to the political dispute, as banks are encouraging particularly non-domestic deposits to stay with them. The best way to do that is with more yield.”

Partly because of the diplomatic crisis and partly because of rising U.S. interest rates, which affect Qatar through its currency peg, the cost of interbank funding has risen sharply. The six-month Qatar interbank offered rate is above 2.60 percent compared to 2.23 percent at the start of June.

As a result, bank deposit rates in Qatar generally are under upward pressure, noted Dima Jardaneh, head of economic research for the Middle East and North Africa at Standard Chartered.

“Qatari banks need to diversify their sources of funding. They have to shore up their deposits raising funds domestically, so it is to be expected to see higher rates.” (Editing by Andrew Torchia)