Business | Banking
Qatari banks emerge stronger than their peers from the crisis
Unlike regional peers, Qatari banks delivered strong profitability and displayed healthy asset quality, liquidity and capital indicators.
- By Babu Das Augustine, Deputy Business Editor
- Published: 00:00 September 6, 2010
- Image Credit: Reuters
- Qatar National Bank's head office in Doha. The bank posted a 35 per cent jump in quarterly profit this year. Unlike regional peers, Qatari banks delivered strong profits and displayed healthy asset quality, liquidity and capital.
Dubai: Qatar's banking sector is fast shaking off the impact of the global economic crisis to emerge as the strongest among the regional industry peers, according to rating agencies and banking sector analysts.
The strength of the system is evident in the rising liquidity levels and improving asset quality. The domestic banking system is once again flush with cash that the government has begun to issue Qatari riyal-denominated bonds to soak up some of the surplus liquidity.
"Qatari banks have emerged relatively unscathed from the global financial crisis and regional downturn displaying strong financial profiles, although high credit risks, taken during the lending boom, continue to pose some challenges for the sector," Fitch Ratings said in a recent report.
Qatar's booming economy and robust banking support measures were among the regional highlights of 2009. Unlike regional peers, Qatari banks delivered strong profitability and displayed healthy asset quality, liquidity and capital indicators. As a result, they also distinguished themselves by being stable in their credit rating and outlooks.
Despite these positive factors, analysts believes that Qatari banks are likely to face credit risks on loans to domestic real estate and construction segments which continue to pressure banks' standalone risk profiles.
Real estate sector
"Qatari banks' non-performing loan [NPL] ratios are currently very low, and among the best in the region," said Mahin Dissanayake, associate director, in Fitch's Financial Institutions team in Dubai.
"However, Fitch warns that this could change due to the ongoing problems affecting the real estate and construction segments and the spill-over into the wider economy."
Total provisions of Qatari banks increased to 6.38 billion riyals ($1.75 billion) at the end of July, after rising 4.6 per cent in the previous month. Monthly growth in specific loan provisions slowed to two per cent, from 5.3 per cent in June, the data showed.
Some Qatari banks have taken large provisions for exposure to debt-ridden Saudi family firms in the past; while the government pumped funds into the sector last year to keep it stable following the global credit crunch.
Bank loans rose to 262.6 billion riyals in July, after increasing by 1.7 per cent month-on-month at the end of June, and were 30 per cent higher than a year ago, the data showed.
Combined, Qatari banks represent 11 per cent of assets in the Gulf, research from Kuwait-based Kamco shows, compared with 35.6 per cent in Saudi Arabia, 15.5 per cent in Kuwait, and 30.6 per cent in the UAE.
Although hurt by the impact of lower oil prices and the abrupt halt in the real estate boom, Qatari banks received substantial support from the government in the form of capital injections and facilities to remove poorly performing assets from their books.
Major Qatari banks reported robust results in the second quarter, with Qatar National Bank posting a 35 per cent jump in quarterly profit. Commercial Bank of Qatar reported a 23 per cent increase in the second-quarter profit.
Analysts view that the banking sector's liquidity as strong overall, boosted by the Qatari government's purchase of bank assets (local equities and certain loans) in exchange for cash and government bonds in 2009.
Qatari banks are primarily customer deposit funded. Although a general shortage of deposits in the system has led to fairly high loans/deposits ratios, unlike many banks in the region, raters say Qatari banks have good access to the international capital markets due to positive investor sentiment on Qatar, reflecting the country's strong macro-economy and the success of its banking support measures.
The Qatar spent about 6.5 per cent of its gross domestic product last year on capital injections and other measures to maintain stability in the sector.
Capitalisation has also been strengthened by direct capital injections by the Qatari government, which saw the government take 10 per cent equity stakes in all the country's banks apart from QNB (which is already 50 per cent government-owned).
As a result, Qatari banks are among the world's best capitalised financial institutions. Shuaa Capital, a Dubai investment bank, forecasts that deposits will rise almost 17 per cent this year, while credit growth will accelerate to 16 per cent — led by government borrowing.
"The Qatari banking sector kicked off 2010 on a highly positive note and is currently enjoying comfortable liquidity, relentless public credit demand and low-risk profile compared to regional peers," Shuaa said in a recent report.
Credit environment
Despite the strong macroeconomic fundamentals of the country and robust balance sheets analysts say Qatar's banking sector could still face some risks on asset quality in the medium term.
"More evidence of potential NPLs can be seen in the high levels of renegotiated and past due loans which suggest that current low NPL ratios may understate reality" said Fitch's analyst Dissanayake.
Although recent government support for key real estate developments is positive and the State's ongoing investment drive could improve the credit environment, analysts said the private sector is likely to remain stressed for some time which could act as a drag on assets and profits.
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