QNA
Doha
Fitch Ratings has described the launch of Treasury sukuk by Qatar Central Bank (QCB) as a positive thing and structural improvement, where the domestic Islamic banks have provided a venue to invest their excess liquidity, pointing out that such short-term liquidity management tools in the form of Treasury bills (T-bills) were only available to conventional banks, placing Qatari Islamic banks at a disadvantage as they couldn’t invest due to sharia restrictions of Qatari Islamic banks.
In a report issued Thursday, Fitch Ratings elucidated that the Qatari Islamic banks funding and liquidity profiles continued to be stable and Islamic banks market share continued to grow, reaching 27% at the end of the first half of 2022, pointing out to the government sukuk limited effectiveness as a tool of liquidity-management tool due to its medium-to-long maturity, and the general buy-and-hold nature of sukuk investors although the Qatari Islamic banks have utilized Islamic liquidity-management tools, including interbank placements, Islamic repurchase agreement, Qatar Money Market Rate Standing Facility, and maintaining reserves with QCB. The Islamic banks also invested in Qatar government sukuk.
The report stated that the issuance is part of the first auction conducted under the enhanced auction procedures that was introduced in September 2022. Likewise, QCB increased the number of Treasury instruments, including Islamic instruments, and launched shorter-tenor T-bills and sukuk, of one week and one month, in anticipation of T-bills and sukuk yields to be consistent with headline interest rates and to help further develop the domestic yield curve, provide a debt pricing reference, and expand domestic debt capital markets (DCM).
Fitch Ratings reminded the State of Qatar’s orientation towards supporting all domestic banks should there be liquidity pressures, pointing out that rolling out treasury bills and sukuk can open the way for local companies and banks to issue bonds and sukuk in riyals and diversify financing, considering that the development of the local debt capital markets will benefit smaller Qatari issuers, as the international issuance has greater complexities, higher issuance cost and additional disclosure requirements, with difficulty in raising smaller amounts in the international market, as well as the possibility of helping local, regional and international investors to expand their investment options.
