Sunday 11, June 2017 by Nabilah Annuar

UAE Central Bank orders to freeze Qatari accounts in the country

Central Bank of the UAE issues instructions for freezing accounts, deposits, investments of designated terrorists and terror organisations. At the same time, several Qatari bank ratings were lowered following a sovereign downgrade.

Banks and other financial institutions operating in the UAE have been instructed to search for and freeze any accounts or deposits or investments held by individuals or entities designated as terrorists or terrorist organisations, reported national news agency, WAM. This was agreed during a Cabinet Resolution on Thursday, according to a circular issued by the Central Bank of the UAE.

In another circular, the Central Bank advised banks and other financial institutions operating in the UAE to apply enhanced customer due diligence for any accounts they hold belonging to six Qatari banks.

A bank press statement said the two circulars were issued based upon UAE Cabinet Resolution 18/2017 designating fifty-nine (59) individuals and twelve (12) entities as terrorists or terrorist organisations.

At the same time, a number of financial institutions based in Qatar that have held accounts for these sanctioned individuals and entities have been identified. These banks are—Qatar Islamic Bank, Qatar International Islamic Bank, Barwa Bank, Masraf al Rayan, Qatar National Bank, Doha Bank.

These actions follow the decision by the Kingdom of Saudi Arabia, the Arab Republic of Egypt, the United Arab Emirates, and the Kingdom of Bahrain, as part of their unified and ongoing commitment to combatting terrorism, to update their respective lists of designated terrorist organisations and individuals to include the 59 individuals and 12 entities in each of their four jurisdictions.

The isolation of Qatar has led to a downgrade of the state’s long-term sovereign credit rating to ‘AA-’ by S&P Global Ratings. The ratings have been placed on a Credit Watch with negative implications as the agency opines that the severance of diplomatic ties, trade and transport links with Qatar will exacerbate the country's external vulnerabilities and could put pressure on its economic growth and fiscal metrics.

In the same breath, S&P also lowered its long-term counterparty credit rating on Qatar National Bank (QNB) to 'A' from 'A+'. At the same time, it placed the ratings on QNB, Commercial Bank (CBQ), Doha Bank, and Qatar Islamic Bank (QIB) on CreditWatch with negative implications.

As a government-related entity, QNB has a very high likelihood of receiving extraordinary government support, in case of need. CBQ, Doha Bank, and QIB on the other hand are systemically important banks in Qatar and Qatari authorities are highly supportive of the banking system.

The recent developments may result in an outflow of external funding for Qatari banks over the next few months, depending on how the situation evolves. S&P believes that the banks' current liquidity profiles should help them absorb a moderate drop in external funding. Overall, Qatari banks' net external debt totalled at about $50 billion at the end of April 2017.

Authorities in Qatar are highly supportive toward the banking system and government support is highly likely in case of need. However, if the situation is not resolved relatively quickly, it might exert further pressure on banks' credit quality.

Features & Analyses