The rise of Gulf spread trading linked to the US dollar: Qatar and Saudi commercial banks became double pivots for UBS (UBS.US) leveraged deposits

The Zhitong Finance App learned that international financial giant UBS (UBS) is stepping up its efforts to use the Bank of the Middle East's customer cash. The institution is turning ultra-high net worth clients' originally low-yield cash positions into a leveraged spread transaction in the Gulf region — that is, after customers borrow funds, they are combined into institutions that provide savings interest rates of about 5%, such as Qatar National Bank and Al Rajhi Bank (Al Rajhi Bank), which provide savings interest rates of about 5%, using high deposit returns and an exchange rate linked to the US dollar to reduce some foreign exchange risks.

The latest strategy can not only amplify clients' cash returns, but also generate structural design fees and financing revenue for UBS, but leverage also introduces tail risks such as rising financing costs, counterparties, liquidity, and currency decoupling. In particular, we need to be wary of the repricing of risk premiums in the Gulf region in the context of the ongoing geopolitical conflict between the US and Iran.

According to media reports citing information revealed by people familiar with the matter, UBS Group is expanding activities to provide customers with Bank of the Middle East leveraged deposit products to take advantage of the region's higher savings interest rates.

People familiar with the matter said that the Swiss financial giant recently proposed to wealth management clients to add borrowed funds to funds deposited with Qatar National Bank QPSC to help increase returns. Since relevant details were not disclosed, people familiar with the matter requested anonymity. Qatar National Bank is the largest bank in this gas-rich peninsular country located in the Persian Gulf. Previously, the financial giant, headquartered in Zurich, provided almost the same product for Al Rajhi Bank, Saudi Arabia's largest bank by market capitalization. Saudi and Qatari currencies are pegged to the US dollar to reduce regular exchange rate fluctuations, making local high-interest deposits a relatively clear target for UBS leveraged interest rates.

In recent months, Al Rajhi Bank announced a savings interest rate of about 5.1%; Qatar National Bank also offered similar interest rates for deposits of at least £100,000 (US$136,000) through its branches in Doha and London this year. The final approval was made by the bank's UK branch.

A UBS spokesperson declined to comment. A representative of the Doha-based Qatar National Bank did not respond to a request for comment. The bank is one of the largest commercial banks in the Middle East in terms of total assets, and the Qatar Sovereign Wealth Fund is its largest shareholder.

Even though the protracted conflict between the US and Iran is testing investment intentions, the move highlights the importance UBS Group attaches to the affluent Gulf region.

Since this year, the UBS US ADR (UBS.US) trading price has risen by about 20% due to diversified layout strategies and the boom in stock investment by high-net-worth clients, significantly outperforming the S&P 500 index, the benchmark stock index for US stocks.

This deposit strategy, which targets some of the largest banks in the Middle East, is actually a variant of spread trading. Since both the Saudi riyal and the Qatari riyal are linked to the US dollar, their foreign exchange risk is limited to a certain extent.

Banks that provide leveraged deposits can earn revenue by charging upfront structural design fees, and can also provide financing to customers who want to increase the return on the relatively low-risk portion of their investment portfolios. UBS conducted a survey of 307 investment institutions that manage assets for ultra-high net worth families this year, and found that in 2025, these institutions will usually allocate close to 9% of their portfolios to cash assets.

Bank of the Middle East offers attractive savings interest rates, highlighting how large-scale domestic projects in the Gulf countries — such as Qatar hosting the 2022 World Cup — can push local banks to attract additional global capital to cushion the long-term pressure brought about by domestic financing needs.

Qatar National Bank is an important source of capital for the energy industry, which has made Qatar one of the world's largest suppliers of liquefied natural gas. Over the past decade, the bank has expanded its international operations in markets such as Turkey and Egypt, helping it absorb new deposits.

As of June, the bank's total assets under management reached 1.4 trillion Qatari riyals (approximately US$395 billion); in the past ten years, its loan deposit ratio has increased by nearly 10%, highlighting the growth of the loan business. However, according to data compiled by Bloomberg, in the first half of this year, the proportion of loans classified as non-performing loans in Qatar National Bank's loan portfolio was 2.5%, less than half of the highest level of the Bank of the Gulf.