DUBAI: Banks and firms across Gulf Arab nations sought to keep business links to Qatar open and avoid a costly fire-sale of assets on Wednesday as a political freeze descended on the region.

Many banks in Saudi Arabia, the United Arab Emirates and Bahrain suspended new business with Qatar soon after their governments cut diplomatic and transport ties with Doha on Monday, accusing it of supporting terrorism.

But it was still unclear on Wednesday whether tens of billions of dollars of existing deals - from loans to bank deposits and cross-border shareholdings, as well as merchandise trade contracts - would have to be unwound, and if so how fast.

That left bankers and businessmen in limbo as they continued to insist to clients that commercial links had not been severed, even though their ability to service these links was in doubt.

“Customers keep asking the bank whether it is still operating in UAE and the banks response is, it’s business as usual,” said an executive at a Qatari bank in the UAE.

He added that the UAE business did not do interbank deals locally and obtained funding from its head office in Doha, so it was able for now to continue corporate and retail banking.

Like most other businessmen, he declined to be named when talking about Qatar because of political sensitivities. The UAE has threatened anyone publishing expressions of sympathy towards Qatar with up to 15 years in prison.

The UAE central bank issued a statement saying payments and remittances in the UAE financial system were occurring normally after the diplomatic split, but it did not specify whether UAE banks would be required to close out their exposure to Qatar.

UAE Minister of State for Foreign Affairs Anwar Gargash told Reuters that the UAE could not rule out more curbs on bilateral business. He did not give details of banking policy.

BANK GUIDANCE: Bankers in Riyadh said they had received informal guidance from the central bank which essentially banned new transactions with any Qatari institution.

The guidance was ambiguous about whether existing deals, such as syndicated loans involving Saudi and Qatari banks, could remain in place. The bankers said they hoped to clarify the new policy in coming days.

The Saudi, UAE, Bahraini and Qatari central banks did not respond to requests for comment. Some bankers believe the lack of official guidance is deliberate - if the diplomatic crisis can be resolved within days or weeks, all sides could save money by avoiding a forced sale of assets in each other’s countries.

“There is still a feeling that this will be resolved,” said a banker at a major international institution which does a lot of business with Qatar.

But the head of Middle Eastern debt capital markets at a European bank in Dubai said his institution had put all new Qatari business on hold while it awaited guidance from the UAE central bank, which was expected to imitate Riyadh’s policy.

The chief executive of an Abu Dhabi bank said he was bracing for the possibility that he would have to close out his Qatar exposure by boosting his access to ready funds.

“Stopping new business was relatively easy - the difficulty would be unwinding existing business,” he said.

Published in Dawn, June 8th, 2017