Some international banks are serving Qatar from London and New York instead of Dubai’s financial center as a regional dispute makes it harder to do business with clients in the gas-rich Gulf state, according to people familiar with the matter, reports Bloomberg.
Lenders that handled clients such as the Qatar Investment Authority and wealthy family offices out of the Dubai International Financial Centre are shifting coverage to other global financial hubs to avoid damaging relations with the United Arab Emirates and Saudi Arabia, said the people, asking not to be identified because the matter is private.
Saudi Arabia, the U.A.E., Bahrain and Egypt severed diplomatic and transport links with Qatar in June, accusing it of supporting extremist groups. Qatar denies the charges. As part of the restrictions, Emirates, Etihad Airways PJSC and FlyDubai suspended flights to and from Qatar, meaning that Dubai-based bankers have to fly via Oman or Kuwait, adding hours to a flight that used to take less than 60 minutes.
Dubai became the Gulf region’s main banking hub after opening the DIFC in 2004 to attract international banks, asset managers and insurers with promises of zero taxes for 50 years. Many bankers commute daily or weekly between the emirate and neighboring Gulf states such as Qatar and Saudi Arabia to do business with local clients.
A number of Qatari clients are also saying they would prefer to work with bankers outside of the Gulf region rather than with bankers based in the DIFC, the people said.
“It is incontrovertible that every political or economical hit on the Gulf countries will have ripple effects on Dubai as its regional hub,” said Philippe Dauba-Pantannacce, a London-based senior economist and geopolitical strategist at Standard Chartered Bank. This particular crisis “is forcing a redrawing of the traditional trade corridors – whether being goods that now skip Jebel Ali or bankers servicing Qatar from outside the region – and the more it lasts, the more these new patterns will become entrenched.”
Regional banking operations are also being impacted amid the crisis. Some lenders in the U.A.E., Saudi Arabia and Bahrain are said to have cut their exposure to Qatar amid concern of a widening of the blockade, while Qatari lenders are boosting interest rates on dollar deposits to shore up liquidity.
Qatar also has a financial hub of its own that was started by the Qatari government to foster investment in the country’s financial system. The Qatar Financial Centre is sticking to its target to attract 1,000 firms by 2022, Chief Executive Officer Yousuf Al Jaida said in June.
“A lot of investors outside the region say that they are reassessing political risks of doing business in the Gulf, and for some of them, it comes as a complete change of perception from what they use to see as core tenets of their investment rational there: predictability, stability, rule-based business decisions,” Dauba-Pantannacce said.