Qatar's private sector credit demand will remain healthy over 2019 as economic activity inches up, Fitch Solutions said and noted private sector loans have seen double-digit expansion throughout the past 10 months.
Private sector loans constituted a majority (57%) of total loans in the country, driven primarily by the services and trade segments, the researcher said in its latest country report.
Overall Fitch Solutions forecasts loan growth to reach 3.6% y-o-y in 2019, up from 3.2% in 2018, implying a modest increase in Qatar's loan-to-deposit ratio (LDR) to 1.168 this year, compared with 1.161 in 2018.
“Should liquidity pressures re-emerge, we would expect the authorities to extend further support for banks' funding,” Fitch Solutions said.
The researcher believes the authorities remain both willing and able to inject liquidity into the system in order to protect broader macroeconomic stability (both through placement of deposits and other measures such as maintaining favourable central bank lending and repo rates).
The credit quality of Qatari bank assets remains solid, with non-performing loans (NPLs) recorded at 2.1% of total loans in 2017 and estimated by the IMF to have reached 2.9% in 2018.
Fitch Solutions forecast a slight increase in Qatari banks' NPLs over the quarters ahead, driven primarily by sluggish performance in sectors such as contracting, real estate and tourism, where oversupply has become somewhat of an issue.
However, it does not expect this to pose a threat to wider system stability, particularly as loan-loss provisions remain high (at above 100%).
Qatar banks' “liabilities are primarily domestic”, albeit with a significant external component (31.7% of the total as of January 2019).
Fitch Solutions expect this external component to increase over the years ahead, as banks make efforts to diversify funding.
The loan-to-deposit ratio stood at a relatively high 1.203 as of January 2019.
“We expect the ratio to increase slightly over the quarters ahead, before reducing gradually over the medium term amid only moderate loan growth and rebounding public sector deposits,” Fitch Solutions said.
Given the overseas expansion of the larger Qatari banks — primarily motivated by the small size of their domestic market — the sector's foreign currency exposure is gradually rising.
That said, open foreign exchange positions are largely in US dollars, to which the Qatar riyal is pegged.
“Given that we expect the authorities' vast financial buffers to keep the riyal's dollar peg stable throughout the next decade; we assess FX-related risks to banks as low. We also note that the initial pressures on dollar availability caused by the GCC crisis appear to have eased as financial flows have been redirected and concerns over further crisis escalation have been alleviated,” Fitch Solutions said.
Most Qatari banks are well capitalised, it said with the average Tier 1 capital ratio (CAR) standing at 17% in 2018, well above the regulatory limit of 12.5% (plus an ICAAP capital charge of 1% of total capital, bringing the effective limit up to 13.5%).
The CAR has increased substantially in recent years as a result of the implementation of international standards — most recently Basel III regulations, which were reported to be fully phased in as of end-2018, Fitch Solutions said.