Stable loan-to-deposit ratios; rising capital adequacy and still-low levels of non-performing loans indicate that risks to Qatar’s banking sector remain low, according to Fitch Solutions.
Loan growth will likely pick up in Qatar over the quarters ahead as hydrocarbon sector gains lead to improvements in the country’s overall macroeconomic backdrop, Fitch Solutions has said in a report.
Fitch Solutions forecast loan growth at 8.8% y-o-y this year and 9.5% in 2019, up from 8.6% in 2017.
It also forecasts bank deposit growth in the high single-digits over the coming quarters. Non-res ident deposits are rebounding, following a substantial drop in H2, 2017 on the back of the GCC crisis.
“We expect this trend to remain in place going forward, as Qatari banks prove able to attract funding from extra-regional sources. The banks benefit from strong support from the Qatar Central Bank (QCB), while having sound fundamentals,” Fitch Solutions said.
Moreover, as macroeconomic conditions improve and interest rates gradually rise, it also expects domestic private sector deposits to rise.
Higher deposit growth will in turn reduce the need for the QCB and government entities to prop up deposits - although Fitch Solution notes Qatar could continue to do so easily, given its large foreign exchange reserves and sovereign wealth fund assets valued at 180% of GDP at disposal.
Deposit growth will further help keep the loan-to-depos it ratio broadly stable, it said.
Fitch Solutions MENA country risk analyst Andrine Skjelland told Gulf Times that “all major Qatari banks have sound fundamentals, and benefit from strong support from authorities that remain both willing and able to step in to ensure system stability.”
On some Qatari banks’ presence in Turkey, Skjelland said, “As such, Turkey-associated risks appear contained. Indeed, this risk (of Qatari banks’ presence in Turkey) was reflected in the mid-August drop in Qatari banks' stocks as the lira sell-off accelerated.”
The overseas expansion of the larger Qatari banks - primarily motivated by the small size of their domestic market - has increased the sector's foreign currency exposure, a trend that will only deepen in the future, Fitch Solutions said.
The top five banks have a substantial presence abroad, and aggregate cross - border assets now account for a fifth of all banks' total assets. That said, open foreign exchange positions are largely in dollars - to which the Qatari riyal is pegged - mitigating the risks.
The credit quality of Qatari bank assets remains strong at present, with non-performing loans (NPLs ) equal to only 1.8% of total loans as of
December 2017, Fitch Solutions said.
Most Qatari banks are well capitalised, Fitch Solutions noted with the overall capital adequacy ratio standing at 15.4% in September 20 17 (as reported by the IMF), compared to the regulatory requirement of 12.5%.
“Qatar's adoption of Basel III standards (which is being phased-in through the introduction of the net stable funding ratio and a new capital surcharge for systematically important banks) will continue to put pressure on banks to strengthen their capital positions,” Fitch Solutions said.
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