Dubai: The 2015 full-year results of Qatar banks point to a tough year ahead for the banking sector in terms of loans and deposit growth and profitability, with lenders seen shrinking dividend payouts to avert a potential deterioration in asset quality.

Qatar National Bank (QNB) reported net profit of 11.3 billion Qatari riyals (Dh11.38 billion) for 2015, up from 10.5 billion riyals in the previous year. In the fourth quarter, the bank reported modest growth in year-on-year profit to 2.58 billion riyals, compared to 2.45 billion riyals in the corresponding period the previous year.

Commercial Bank of Qatar earned a net profit of 1.45 billion riyals, compared to a profit of 1.94 billion riyals in 2015.

Doha Bank earned a net profit of 1.37 billion riyals in 2015, up from 1.35 billion riyals in the previous year.

Although the earnings of Qatari banks have remained somewhat resilient in the face of sharp decline in operating environment, bankers and analysts expect the sector to face a tough year ahead as liquidity and loans’ growth suffers.

According to rating agency Standard & Poor’s, as in 2015, lower energy prices will continue to translate into weaker deposit growth and contracting liquidity for Qatari lenders in the year ahead.

“We anticipate slowdowns in lending and in revenue and earnings growth this year, owing to rising funding costs after interest rate hikes, as well as credit losses,” said Standard & Poor’s credit analyst Timucin Engin. “We think that operating conditions for Qatari banks will toughen this year, denting their profitability.”

Although the drop in hydrocarbon prices and the Qatari government’s streamlining of its public investment programme are putting the brakes on economic growth, asset quality at banks held steady while credit growth remained resilient on the back of strong private sector activity in 2015.

S&P analysts anticipate that operating conditions for Qatari banks will toughen in 2016, denting their profitability.

In 2015, the Qatari public sector withdrew some of its deposits from the domestic banking system. The rating agency expects more of the same in 2016 and foresees a further squeeze on banks’ liquidity.

Further trimming of government spending will likely reduce private-sector lending opportunities.

Analysts expect to see a jump in credit losses this year given the economic slowdown.

“Over the past few years, public-sector lending took a back seat, while a visible portion of new lending was in the private sector,” said Standard & Poor’s credit analyst Nadim Amatouri.

“We now anticipate increased credit losses in the private sector, particularly given our expectations for slowing real GDP growth.”

While banks’ exposures to contractors are widely seen as susceptible to credit losses amid slowing capital spending, a sharp drop in the performance of Gulf capital markets is expected to result in investment losses and lower earnings.

Generally weak deposit growth is expected take a toll on liquidity in the banking sector in 2016.

Qatar’s public sector entities withdrew some of their deposits from domestic banks in 2015.

As of November 30, 2015, public-sector deposits had fallen 9.9 per cent year-on-year or 3.3 per cent year-to-date.

Consequently, total resident deposits grew only 2.3 per cent year-on-year, or 3 per cent year-to-date on the same date.

The relative weight of public sector deposits fell 34.8 per cent during the same period from 38 per cent at the beginning of the year.

Qatari interest rates already started to increase in 2015 in response to contracting liquidity.

Domestic credit in Qatar grew by 17 per cent year-on-year as of the end of November 2015, outpacing deposit growth. The loan-to-deposit ratio in the domestic market increased to 114.8 per cent by November 30, 2015, up from 100.4 per cent a year earlier.

Qatar currently has the highest loan-to-deposit ratio among the six GCC banking markets.