While the banking sector in several countries across the globe continues to face difficulties, Qatar’s banking sector continues to maintain its growth momentum across a range of performance indicators, while at the same time maintaining good asset quality, according to QNB group analysis.
The overall assets of banks in Qatar grew by 10.7 percent during the year up to August 2012 to reach QR772.6 billion ($212.2 billion), compared to QR698.0 billion ($191.8 billion) as at year-end 2011, according to the latest data by the Qatar Central Bank. Asset growth was driven mainly by the increasing loans that grew by 18.5 percent to QR479.7 billion ($131.8 billion) for the sector.
The public sector, and principally government agencies and semi-agencies, was the main driver of loan growth, increasing by 35 percent in the year to August 2012, to QR201.3 billion ($55.3 billion). It accounts for the majority of loans in Qatar, and its share has grown from 22 percent (QR35.9 billion) in 2007 to 42 percent (QR201.3 billion) as at August 2012. Financing of large capital investments in developing the country’s infrastructure has been the key driver of public sector loan growth. Government agencies, semi agencies and large corporate, which are engaged across economic sectors, are expected to continue to be the main driver of loan growth given the large development program and infrastructure projects underway and to be implemented in the short to medium term. Government spending will at the same time provide additional opportunities for the private sector and contribute to a rising consumer demand.
Loans to the real estate and construction sectors increased by 10.2 percent during the year up to August 2012, as activity in this sector continues to pick up. The services sector has witnessed the most rapid increase during the year 2012, and has more than doubled its outstanding loan amount from QR30.3 billion as at year-end 2011, to QR74.5 billion as at August 2012. The main borrowers in the services sector have been air transportation, sea transportation and hotels.
Consumption or retail loans declined by 18.0 percent during the year up to August 2012. The QCB regulation issued in April 2011 on retail lending caps have been one of the key factors limiting loans to this segment.
As well as the retail lending caps, QCB has also established a credit bureau. Although the retail lending caps may have restricted lending, they have been effective in keeping the NPL ratio low and will support long-term sustainable growth. The QCB has also recently announced plans to establish a credit rating agency for domestic non-government entities, which will be a joint initiative along with Qatar Holding. While the initiative is primarily aimed at debt issuance and further developing the capital markets, it will also improve the availability of information for banking sector credit assessments.
On the funding side - Qatar’s banking sector deposits grew by 15.7 percent during the year up to August 2012, to reach QR420.6 billion. Public Sector deposits increased by 17.3 percent during the year and accounted for 35 percent of overall deposits, while Private Sector deposits went up by 17.2 percent for the year and accounted for 61 percent of overall deposits.
While the funding profiles of banks remain largely derived from customer deposits, increasingly banks are turning to the capital market issuing long-term debt instruments. A recent example is QNB’s $1.8 billion syndicated facility with a three year maturity that was completed in August. Given the preference of customers in Qatar and the region of placing deposits on relatively short maturity, accessing the capital market benefits financial institutions in several ways through widening and diversifying their investor base and lengthening the maturity profile of their liabilities, thus better matching the maturity profile of their loans.
A key measure of the performance of the banking system is the quality of its assets, given the impact on the bottom line stemming from impairments on the loans and investment portfolios. In this regard, the Qatari banking system is well positioned with the overall NPL ratio declining to 1.7 percent in 2011, from 2.0 percent in 2010, which is among the lowest in the region.
Meanwhile, a look at Qatar Exchange listed banks profitability data for the first half of 2012 shows a growth by 12.9 percent, over the same period in 2011.