Doha: Qatar banks’ reliance on foreign lenders has risen to a record this year as their funding is stretched by the surge in project financing in the nation preparing to host the 2022 Fifa World Cup.
Net interbank borrowing from foreign banks almost tripled in the year to April, with Qatar’s lenders being net borrowers of 111.9 billion riyals (Dh113.83 billion,$31 billion), according to Bloomberg News calculations based on central bank data. That’s the highest since at least 2004, the earliest data posted on the regulator’s website.
Qatari banks are tapping new funding sources as deposits fail to keep up with loan growth. The loan-to-deposit ratio was 120 per cent in April, the highest in the Gulf Cooperation Council (GCC), central bank data show.
Qatar banks also pay the second-highest three-month interbank rates in the GCC. The rate rose six basis points in 2012 to 1.22857 per cent on Saturday, compared with equivalent rates of 0.915 per cent in Saudi Arabia and 1.5275 per cent in the UAE.
“Qatari banks have grown increasingly dependent on the international interbank market,” said Nick Stadtmiller, head of fixed-income research at Dubai-based Emirates NBD PJSC. “It’s not an accident that rates are high in Qatar, which could cause foreign money to flow into the system. Qatari banks need foreign capital to fund credit growth, and they need higher interest rates to attract that money.”
The world’s richest country based on per-capita income boosted state expenditures by 28 per cent in this year’s budget, the state-run Qatar News Agency reported last month.
The nation of 1.8 million people plans to build stadiums, hotels, roads and a new city to house 200,000 people before the world’s most- watched sporting event. It may invest about $100 billion in the “medium term” on projects, according to International Monetary Fund estimates.
Banks in the country, which include Qatar National Bank SAQ, the biggest publicly traded bank in the six-nation GCC by assets, posted a combined 35 per cent surge in loans and advances in the year to April, compared with growth of 13 per cent in the same month last year, central bank data show. By comparison, deposit growth slowed to 4.5 per cent in April, from 22 per cent the same month last year.
The high loan-to-deposit ratio is “the symptom of a fast economic growth, especially in 2011, when loan growth has recovered at the fastest pace by far amongst the GCC economies,” Philippe Dauba-Pantanacce, Dubai-based senior economist at Standard Chartered, said in an emailed response to questions on Saturday. “While this can constrain somehow the ability to substantially increase lending without attracting more deposits, it should not mean that the Qatar banking sector is going through a rough patch.”
Qatar’s economy grew 18.8 per cent last year, almost three times faster than Saudi Arabia’s, according to data compiled by Bloomberg. It will probably expand another 6.1 per cent in 2012, the GCC’s fastest pace, according to the median forecast of 11 economists compiled by Bloomberg.
The government of the world’s biggest exporter of liquefied natural gas is forecasting a budget surplus of 23 per cent of expenditure in its 2012-2013 fiscal budget, compared with 16 per cent a year earlier, the Qatar News Agency reported.
In an effort to deepen the country’s debt market, Qatar’s central bank sells treasury bills at monthly auctions at the highest yields in the GCC. The central bank offered yields of between 1.63 per cent and 2.85 per cent on the 4 billion riyals of securities it sold last month, Governor Shaikh Abdullah Bin Saud Al Thani said on May 10. The regulator was set to hold its next auction yesterday.
“Any liquidity tightness could be met by increased government deposits in the banking sector and/or lower issuances of T-bills,” Monica Malik, Dubai-based chief economist at EFG- Hermes Holding SAE, the biggest publicly traded Arab investment bank, said in an email on Saturday. “If there is a fall in external lending or any wider tightening in banking sector liquidity, we believe that Qatar will be able to ensure that funding is available domestically.”
The nation’s banks have also turned to the bond market for funds, raising a combined $2 billion so far this year, up from no issuances in the same period last year. Sales included Qatar National Bank’s issuance of $1 billion dollar-denominated notes in February at a coupon of 3.375 per cent. Doha Bank QSC and Commercial Bank of Qatar QSC also sold $500 million each in dollar bonds.
Still, greater dependence on funding from abroad may leave Qatari banks more exposed than the UAE or Saudi Arabia to any worsening of Europe’s debt crisis, and potentially lead to an increase in interest rates, Stadtmiller of Emirates NBD said.
Qatari banks relied on funds from banks abroad to finance a record 15.5 per cent of their balance sheets in April, according to Bloomberg News calculations based on central bank data. That ratio rose from 7.1 per cent in April 2011 and just above 5 per cent in June 2011, the data show.
“If European banks cut foreign exposure quickly, the impact would be felt more strongly in Qatar than elsewhere in the GCC,” Stadtmiller said. “Qatari interest rates could rise if European banks cut their lending to the country.”
