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Qatar Treasury bill yields down sharply; liquidity loose
Cash-rich banks offer lower bids; Not seen as sign of monetary policy change; Lending growth has slowed, deposit growth still healthy; Deposits at central bank increase; Inflation does not appear a threat
July 5, 2012 5:48 by Reuters
Qatari Treasury bill yields fell sharply at this week’s 4 billion riyal ($1.1 billion) auction by the central bank as cash-rich local banks offered lower bids.
The central bank sold 1 billion riyals of nine-month notes at an average yield of 1.98 percent, down 38 basis points from last month’s sale, bankers in Doha said.
It also sold 1 billion riyals of six-month notes at 1.89 percent, down from 2.02 percent in June, and 2 billion riyals of three-month bills at 1.46 percent, down from 1.48 percent.
“The lower yields are not in any way related to central bank policy. It’s a pure liquidity issue. Banks have excess liquidity, and they’re putting in lower bids,” said a Doha-based commercial banker.
“We expect to see yields move slightly lower in the next two issuances to a level more representative of current interbank lending rates. After the August and September issuances, levels should become more static,” another banker said. The weighted average three-month interbank lending rate was at 0.94 percent in May, an 11-month low, according to central bank data.
Officials at Qatar’s central bank were not available for comment. The monthly T-bill auctions, launched in May last year, are designed to drain excess liquidity from the banking system and help build a Qatari riyal yield curve.
Central bank governor Sheikh Abdullah bin Saud al-Thani said last October that the bank was selling 2 billion riyals of T-bills every month; in April he said monthly issuance had risen to 4 billion riyals and the bank would continue that volume.
Central bank statistics suggests Qatari banks are swimming in money. Their deposits with the central bank, one indicator of how much excess funds they have, more than doubled from the previous month to 138.4 billion riyals in May, a 13-month high.
Deposit growth at the banks was an ample 11.1 percent year-on-year in May, though down from last year’s levels of around 20 percent. Meanwhile, growth in banks’ corporate lending has slowed from last year’s red-hot levels, as the economy has slowed somewhat; private sector credit expanded 13.5 percent in May, near April’s 13-month low of 13.4 percent.
Banks’ earnings have been healthy. Qatar National Bank , the country’s largest lender by market value, reported a 16.7 percent jump in second-quarter profits on Wednesday.
“Risk levels are more favourable for Qatari banks than many of their European counterparts; the cost of funding is less for Qatari banks. Generally the interest they pay for deposits is less than what they are lending, and their non-interest margins are also favourable,” said a Doha-based economist, who declined to be named.
With the global economic environment uncertain and inflation in Qatar not a major threat, Qatari monetary authorities appear to have little reason to tighten policy any time soon, while the riyal’s peg to the U.S. dollar limits the central bank’s ability to conduct an independent policy.
The General Secretariat for Development Planning predicted late last month that economic growth would slow to 4.5 percent in 2013 from a projected 6.2 percent this year, adding that the country saw large risks in the global economy. It forecast inflation would hover between 2 and 3 percent in 2012 and 2013.