Following are excerpts from a CNBC interview with Abdullah Saud Al-Thani, Governor, Qatar Central Bank.
WM: You've said in the past that Qatar has enough foreign reserves - I think it's about 35 billion dollars - to deal with these circumstances. I wonder if you could put a dollar amount on how much of those reserves you've had to draw down over the last month to maintain stability, support the currency, reassure the banks?
CBG: Well first of all I would like to thank you very much for having me today. You know, I might say a little bit about the Qatar Riyals and its exchange rate against the dollars. It is I just want to confirm that it is very stable against the dollars, for the last you know - not only for the last month, but also for the last -- but also since the fixing of the exchange rate which is - has been started in 1980, 81, and since more than 37 the Qatar Riyals and the exchange the rate against the dollars has been proven. That with all the external shocks, whether it's the financial or geopolitical issues, it has no effect at all, which being proof that the stability of this currency will continue for the future. In addition to that, the Qatar Riyals has a good foreign reserve, and plus gold, and that's more than 35 - 40 billion dollars. and that's only the reserve of the Qatar central bank, but there is also an abundance of reserve with the Qatar investment authority, which is the sovereign wealth fund, and also other resources. Plus - you know - Qatar Central Bank also guarantee the convertibility of the Qatar Riyals by the law, whether it's inside Qatar or outside Qatar, and thus assure you that in any times, the rate will be convertible. In addition that the Qatar Riyals is an international currency, it's very important to know that it's recognized by the IMF, the International Monetary Fund, and it's an official currency and established since long time ago.
WM: I don't think anybody questions any of that. I think the question I have though, is how much of your reserves, have you had to draw down over the last month to maintain stability, to prop up the currency?
CBG: You know there are two types of stability. One of them through our open market operation, which is provide Qatar riyals to the market, and that's through the repo and the open market activities, and the second as you mention is we provide almost - not that much - some of them went as a foreign currencies, as usual, is normal, as it was, but there are more first and second day, and that's almost less than $6bn, I can tell you the numbers. And that's not a very significant amount in one month, and the same time, we have also inflow, some banks are also sold us foreign currency. And as you know, our open market activity in the capital market from outside investors who buy and sell in the stock market, also they are coming from international - either asset management, or funds, or individuals. I'll give you an example, today or tomorrow, we have 100, more than 120 people who is gonna enter the market, in our stock market. They are registered and we will approve it tomorrow. So 120 in just a few days, these are asset management, international funds managers, and also individuals. So there is an activity in now. and we haven't seen a very significant amount has been drawn from our reserves. And we -- we are satisfied that it is a normal amount of money has been drawn in the last month almost.
WM: Let me ask about the repo facility. How changes have impacted Qatar. What kind of an increase have you seen in the use of your repo facility by local banks in local banks.
CBG: It has been active.
WM: But be more specific.
CBG: The amount? It's a normal level but it has been increased maybe first week to up to $10bn or maybe $15bn. It doesn't make any difference to us. What's very unique you know for Qatar is it's created this open market operation, since a long time ago. We have enough CDs and Treasury Bills and Treasury Bonds in the hand - in the asset side of the banking sector, that provide them with the liquidity. Therefore this is not only to provide them with liquidity, it is also to create with the yield curve which is the free interest rate for Qatar, long time ago. And we are happy about that and it is also the treasury bill and treasury bond is listed in the stock market, and this most liquid instrument in the market. What makes this time of two weeks, month, or during this last maybe two weeks, we saw a maybe very highly active repo facility, which is very good for us, to see our market become more -- you know -- using the open market operation to finance their activity in the domestic through this Qatar Riyals.
WM: part of your job is to project confidence to investors, to businesses, so when you say we have enough to weather this problem. If there is no long-term solution, if this situation continues indefinitely, can you run me through the numbers that give you that kind of firepower long into the future?
CBG: So let's start with the Qatar Central Bank cash reserve, we have above 40 billion sitting here cash plus gold. In addition to that we have our Qatar Investment Authority reserve, which is above the 300 billion dollars, the first ....INCOMPREHENSIBLE....different currencies, and also -- in addition to that, from the export side of Qatar there is no interruption at all. We have flow of gas and oil is going all the way to our clients, no interruption, and we believe that these contracts which have been agreed by Qatar Petroleum and Qatar Gas, is a long-term and this is why its a reserve, it's an inflow for us, so this is the credibility of our system, we have enough cash to preserve any - any kind of shock, but we don't see this kind of -- this shock is really significant for us, it's not a financial, it's not geopolitical, it is just unique that the country and the government was committed to its own people, both citizens and resident, to supply all the needs, whether it's the supply of food, or the supply of raw materials, or any kind of need. So we played a big role, as Qatar Central Bank, and we find our banking sector well capitalized, meeting Basel III as they have high liquid asset,s plus they have a very good inter-banking activity inside and outside, and they are very stable at this moment. So we don't believe that there is anything to worry about at this moment. What I can say is that our environment proof to anybody that we are first of all solid, strong and resilient against any kind of shocks.
WM: Before this crisis, Moody's downgraded. Last month S&P downgraded. Fitch placed you on credit watch. And then just a few days ago Moody's said they were downgrading your forecast for debt sustainability. Do you think that any of those decisions by the ratings agencies were justified, or do you not?
CBG: Let me say before it's justified, but we can proof that. If you look at our financial sectors now, and also our debt side, which is almost the loan - to give ou an example now, today is almost the six months over, so our results just came out in the banking sector. One to proof to you that our profitability is higher than it was in the beginning of the year, second our loan to deposit that was the concern for all these ratings company, it's going to be met by the end of the year, to the 100 percent. I give you an example., maybe at the beginning - end of 2016, we have seen loan to deposit ratios of 117, 118, and that's what makes the Moodys and the ratings companies worried. Today we find out that the loan to deposit ration was 107. Of the first six month. So we are heading to reach the 100 percent of loan to deposit by the end of this year. That will proof that we are really solid, strong and able to meet our credibility in managing all the prudential side, financial stabilities and our monetary policies.
WM: So the ratings agencies have made a mistake?
CBG: No I'm not saying a mistake. I told you we have some kind of some of these issues went off a little bit, one of them, because we have the highest growth economy in the world, we have a lot of activities going on today, banking participant to lend to these companies also, so they went a little bit in the growth side of the credit. But it doesn't mean - maybe faster than the deposit a little bit - but that doesn't mean that we have the mechanism to adjust, and they have to adjust a little bit to meet these requirements. And now today we feel they are meeting the requirement because the rate of loan to deposit ratio is below 1.07. I just give it to you this information. And the profitability is above the 10 percent, and the third, there is a growth in the credit side, and you will see a growth in the deposit side. That's what we notice for the first six months.
WM: Do you acknowledge that if this stand off with the Saudis, Emiratis, Bahrainis and Egyptians continues, that there could be genuine concern about your country's economic growth model?
CBG: No. I don't - our growth - our growth models will be continued, regardless of what, because we have so much activity domestically, and we can prove that our banking - strength will be to finance all these projects, and they will meet the 2022, and the growth model is there, and the growth of jobs will be there.
WM: If you look down the road, some analysts say that in the future you'll face a funding shortfall and increased cost of funds, do you worry about the impact that will have on credit growth, and the knock on effect that will have on non-energy GDP growth?
CBG: I don't think so, because in the GDP growth, we - there are two things, the hydrocarbon and non-hydrocarbon. But the non hydrocarbon is really moving faster than the hydrocarbon, the growth side of that, and that's what gives us more confidence about our economy. Because the oil and gas has reached to -- for the last couple of years, almost to the maximum of producing
WM--- and you're diversifying...
CBG: So the first...INCOMPREHENSIBLE. I give you first an example. We are investing so much in SMEs. I am the chairman of Qatar development bank, and the SMEs is the key element to generate growth in the economy. We went farther than that, we create some incubators, now there are hundreds of people who are in these incubators, to create a lot of activities, to become small and medium size. Maybe there was some challenge in the beginning of this crisis, I will tell you, some of these SMEs will find themselves caught in the supply side of raw materials, or there may be their product might not be sold to the GCC...inside Qatar Development Bank, we found them an alternative within one week.
WM: The other parties in this dispute have said that they may take further action at an appropriate time. If Saudi, Emirati, Bahraini institutions and individuals unilaterally decided to withdraw their deposits and investments from Qatar, how would you manage that extraordinary impact?
You know we have seen and we noticed that there are an outflow from some non-residents, and that is not even significant. There is more coming in.
WM: So the inflows are exceeding the outflows?
CBG: Yes. But even if it not exceeding, we are ready to meet all the requirements of the non-residents if they decided to take their deposits, we are ready to meet all this. And the banking is well, they have this ladder of maturities to meet this requirement.
WM: But we are talking about potentially some $40 billion, that's some 20% of your GDP?
CBG: Yes but we have some ratios as a prudentential ratio for banking, that also some of this money is not gone. They are available, they matching the maturities and they are ready to meet that matching maturities and the ladder between the depositors and where they place it is well organised. As the maturity comes they will meet this maturity they are not being utilised as a long term investment, and they are not lent to a long term creditor. So this money is available but it is matching maturity.
WM: Let me ask you about local banks, how worried are you that they are struggling with wholesale funding from other banks in order to maintain longterm growth in their portfolios? Do you have concerns they are going to start to call in loans?
CBG: No, not at all. Because we still have the highest rating in the region. Therefore I don't see there is a sign of interruption in the inter-banking activities.
WM: What about if there were further escalations that involved Qatar's LNG output? What contingency plans do you as a Central Bank have in place for that?
CBG: LNG? You know most of these contracts of the LNG, are long-term contracts. And they are with our clients, they believe in us, and we believe in them.
WM: I don't question that, I'm saying what if escalations involve disruptions?
CBG: What kind of disruptions? I don't think that there will be a disruption unless there is something beyond this kind of boycott.
WM: But do you have a plan for that is that was to happen?
CBG: Oh yes, we have a plan to run our domestic banking through our domestic activities and we have other alternatives and other strategies to meet all the Bank requirements. We meet almost every week to discuss all the matters. We have set so many strategies that, to fulfil all these kind of expected gaps.
WM: You mentioned the QIA (Qatar Investment Authority), $300 billion or so, is there a specific trigger in your mind that would force you to liquidate overseas assets?
CBG: Until now we haven't seen (anything)
WM: What would it be?
CBG: I don't think there is... Until the moment I can't tell you the need to liquidate some of these assets. And if it's needed I think the QIA will act upon that. But I don't think we will reach that moment where we will have to liquidate some of the international assets. Whether in the West or East.
WM: What about the risk perception? Are you worried about attitudes from overseas investors when in comes to risk in Qatar?
CBG: I don't think so. Why? Because as I mentioned to you. First of all you have to know that the Qatar Central Bank with all other regulators of the capital markets and the Qatar Financial Centre, they are together under the empirical of the Central Bank. So we have only one regulator. Secondly, we have our monetary policies; we draw them at the Financial Stability Committee and this is by law, which was established in 2012. Your question, about the perception of risk, there is no risk. There are 120 registered asset managers, fund managers and individuals from outside (of Qatar) who want and are interested in playing a role in our stock market. And every week we have seen, and we haven't seen this much in a period of time, who come and invest in our stock market.
WM: Invest or speculate?
CBG: It is not speculation. They are mostly coming for almost medium to long term to invest in the stock market and also in our treasury bonds. In addition to this, within three months now, we are ready to issue our CDs and corporate bonds in the stock market. So our stock market will be having so much depth in activities in these instruments. Plus, we have funds like ETFs now coming and other funds will be listed, so the combination of our stock market now is not only stocks. It is bonds, treasury bonds, corporate or CDs. In addition to this, we have other projects like these funds which will be listed in this market. So I think I market will become more, a very advanced level of mechanism of... these instruments. In addition to this we have our central deposit registration is independent which is unique. It provides a lot of information to investors online on a daily basis, whether they are here or outside (of Qatar). This will make them more comfortable to know about their investments here.
WM: A couple more questions, I know you had a separate role in auditing in the past, there are suggestions that the German Intelligence Agency might be involved in essentially auditing Qatar's financial system. Do you think authorities here, the regulator here could have done and could do more to investigate the inflows and outflows origins and destinations of funds that pass through Qatar?
CBG: They are more than welcome. I mean we are open, we have external auditors, we have the IMF, they audit us. We have the rating companies also review us- so we already have so many. So we welcome anybody to come, we have open books and we are really transparent for our inflows and outflows.
WM: When you hear these accusations of financing of terrorism, historically do you think Qatar could've done more to investigate where money was coming from and where money was going?
CBG: No, Qatar has already had a good and unique system. We have laws established against all these kinds of terrorists, we have our own law which also create a unit inside the Central Bank to review all the activity in banking. We have compliance sitting in the banking system. We have also the, maybe only country, the charities, a law that regulates them and also publicly have the external audit team. So we have all the, and in the last years we've had this whole system and it is proven to review everything openly. So we have a very good and unique system and compliance also in the charity side, we have compliance in the banking sector and also two committees, which is both of them under, the international review. So all of them are working together, so a long time ago we established the best law. We work with the IMF and other institutions to establish our laws and audits and reviews.
WM: So my final question is, what are the challenges for Qatar when responding to the demands you have received?
CBG: We have no challenges, we welcome those to review all our books, they are open
WM: How do you resolve this issue? They've made these accusations, Qatar says we're not guilty...
CBG: And I'm saying it, we're not guilty
WM: So how do you resolve that?
CBG: If somebody is ready to review, we are ready to review. We have open books, we have open accounts. Our banking and other institutions (is) conducting this inflow and outflow, they are open and they audit by international companies, also reviewed by the IMF and also reviewed in article 4. And also we have evaluations from time and we have also a self-assesment to review and see how our system is based to the international standard, and we feel we are better and we are open to see.
WM: Final question, is there anything I should've asked you about that I didn't?
CBG: I think you asked all the questions, and I think I just want to say that we are open internationally our business continues as it is, and our trade, our import and export goes on without any interruption. The supply side of agriculture, food, and others isn't impacting our inflation because the prices are under control and the quality is much better than before, so we are really satisfied by what the country has achieved.
WM: I guess one other question, if I was watching this as an American investor, do you think the US authorities have done enough to support Qatar in the last month?
CBG: Support in what way?
WM: In trying to resolve this problem...
CBG: I think that is maybe more of a political (question)... they are working and I hope they have continued dialogue between my country and the US, and we have also dialogue with the treasury side.
WM: Thank you so much appreciate your time.
CBG: Thank you.
For more information contact:
Lee Thompson, International Communications, CNBC