Qatari Treasury bill yields fell sharply at this week's 4bn riyal ($ 1.1bn) auction by the central bank as local banks offered lower bids.

The Qatar Central Bank sold 1bn riyals of nine-month notes at an average yield of 1.98%, down 38 basis points from last month’s sale, bankers in Doha said.

It also sold 1bn riyals of six-month notes at 1.89%, down from 2.02% in June, and 2bn riyals of three-month bills at 1.46%, down from 1.48%.

“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% in May, an 11-month low, according to central bank data.

QCB officials 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.

QCB governor HE Sheikh Abdullah bin Saud al-Thani said last October the bank was selling 2bn riyals of T-bills every month; in April he said monthly issuance had risen to 4bn 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 138.4bn riyals in May, a 13-month high.

Deposit growth at the banks was an ample 11.1% year-on-year in May, though down from last year’s levels of around 20%. 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% in May, near April’s 13-month low of 13.4%.

Banks’ earnings have been healthy. QNB, the country’s largest lender by market value, reported a 16.7% 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 US dollar limits the central bank’s ability to conduct an independent policy.