Concerned about the ongoing Gulf dispute and the slowing growth of Qatar’s banks, credit agency Moody’s has downgraded its outlook for the country’s financial system.

Qatar’s banks now have a negative outlook, instead of a stable one.

This reflects “Moody’s expectation of how bank creditworthiness will evolve in Qatar over the next 12–18 months,” the agency said.

The news will likely put pressure on Qatar to seek a speedier resolution to the crisis with its neighbors, which is now in its third month.

The dispute with Saudi Arabia, the UAE, Egypt and Bahrain is currently at an impasse, with no side willing to make any concessions.

According to Moody’s, Qatar’s bank profitability will only continue to decline if the crisis continues.

What’s going on

One of the biggest factors affecting the latest rating is investor sentiment.

Confidence in Qatar’s banks has dropped due to lower global oil prices and an overall economic slowdown, Moody’s said.

It forecasted Qatar’s GDP to be 2.4 percent this year, down significantly from the 13.3 percent rate seen during the blockbuster growth years of 2006–2014.

“However, (Qatar’s GDP) remains the highest in the GCC, driven by high levels of government spending in preparation for the FIFA World Cup in 2022,” Moody’s added.

Still, a prolonged dispute could hurt bank liquidity, which is already tight due to reduced energy revenues, it said.

Notably, Qatar’s banking sector isn’t the only one suffering from the Gulf dispute.

Earlier this week, a major lender warned that a prolonged boycott could hurt Dubai’s status as a regional financial hub.

This is because the dispute puts international banks in a difficult position, Standard Chartered CEO Bill Winters told Reuters.

“There is a risk of turning away from the UAE,” he added.

Working toward dialogue

As pressure builds to come to a resolution, both Kuwait and the US stepped up efforts to mediate the dispute.

This week, two American envoys have been sent to the region to speak to officials about opening up direct negotiations between Qatar and its neighbors.

Kuwait is also trying to hammer out “a set of measures” to help jumpstart dialogue between the nations, Gulf News reports.

Thoughts?