* Sanctions so far don't force banks to sell Qatari assets
* This could change if diplomatic crisis continues
* Lawyer sees chance of "fire sale in tradable securities"
* Banks check documents for force majeure option
* Qatari loans not being sold in secondary market so far
By Davide Barbuscia
DUBAI, June 19 (Reuters) - Commercial banks in the Gulf are examining their books and consulting lawyers to determine their strategies if the region's diplomatic crisis eventually forces them to sell off Qatari bonds and loans.
So far, sanctions against Doha imposed by Saudi Arabia, the United Arab Emirates and Bahrain have stopped well short of compelling banks under their jurisdiction - including regional branches of international banks - to unload Qatari assets.
The UAE central bank asked banks to apply "enhanced customer due diligence" when dealing with six Qatari banks, making UAE institutions reluctant to do fresh deals. Guidance from the Saudi and Bahraini central banks has also deterred new business.
But banks across the Gulf have mostly held onto their existing stock of Qatari bonds and loans, hoping to avoid mass selling that could force them to book losses.
That could change, however, if the diplomatic crisis drags on and Saudi Arabia or the UAE decide to impose harsher sanctions on Qatar, which they accuse of backing terrorism - an allegation Doha denies.
For example, there could be formal or informal guidance to banks to dump Qatari debt. Local banks in Saudi Arabia, the UAE and Bahrain, many of them partly state-owned, would find it hard to ignore such guidance, and once their selling had begun, international banks might sell to avoid losses.
“From a new transaction perspective, people are already extra-cautious, but for existing paper at the moment the sanctions have no implication," said a Dubai-based lawyer specialising in debt capital markets.
"But if the UAE central bank tells banks they cannot hold Qatari paper, you might expect a fire sale in tradable securities such as bonds and sukuk, which would be sold to international buyers."
The lawyer spoke on condition of anonymity because his firm, like many others in the region, has responded to the political tensions by asking its lawyers to refrain from commenting publicly on Qatar-related issues.
Since early 2014, over $20 billion in international bonds have been issued from Qatar by companies, banks and the government, Thomson Reuters data shows.
Yields on Qatar’s sovereign dollar bonds jumped over 40 basis points after the sanctions were announced on June 5 but have since fallen back nearly 20 bps, suggesting many bank investors still see Qatar as attractive. Some Qatari corporate bonds have been hit much harder.
A ban on holding Qatari assets could be more disruptive to loans than to bonds, another debt capital markets lawyer in Dubai said. That is because banks which extended the loans would search the documentation for ways to force borrowers to repay the loans early.
"A bank could go back to the loan documentation to trigger prepayments based on illegality clauses," he said.
A ban imposed by the UAE would affect not only UAE banks but also loans that international banks had booked from their UAE branches, the lawyer added. The UAE serves as the Gulf's main banking centre.
Qatari banks and companies have raised more than $23 billion through syndicated loans since early 2014, according to Thomson Reuters data.
Lenders would search documentation for the right to declare "force majeure" - an unforeseeable event freeing them from their obligation. Many or most loan documents have a clause providing for this, bankers said.
Michael O’Kane, senior partner at legal firm Peters & Peters in London, who has expertise in international sanctions, said: “Force majeure can usually only be relied upon with confidence if explicitly set out in a clause in the loan agreement, and if the sanctions imposed trigger that clause."
Sanctions would have to be official to permit banks to act, said a Dubai-based banker at an international financial institution with heavy exposure to Qatari banks; unofficial guidance would not give them enough justification.
A European banker said his institution, which has traditionally lent extensively to Qatari banks, was not taking any action at this stage, though credit departments in the industry were becoming nervous.
“There aren't many Qatari loans maturing before the end of this year so there is no pressure to do new business and quite a lot of time for the situation to unfold," he said.
Banks could also try to sell Qatari loans in the secondary market. When Russia was hit by economic sanctions in 2014 the secondary loan market was flooded with Russian paper, and the same happened with Turkish loans after the coup attempt in Turkey last year, traders said.
So far, Qatari loans do not appear to have suffered the same fate. Some of Qatar National Bank's loan paper was spotted in the secondary market this month, a trader said, but he added that the price had not dropped and that Qatari banks’ loans remained very illiquid – suggesting most banks were still holding their Qatari exposure. (Editing by Andrew Torchia and Alison Williams)