Posted on August 01, 2014

Well-capitalised Qatari banks have only a "limited" risk to their health, Economist Intelligence Unit (EIU) has said in a recent report.

Besides "enjoying support from the government", the local banks' risk-weighted capital-adequacy ratio stands at around 20%, well above the 10% required by the Qatar Central Bank (QCB), EIU said in an update on Qatar. EIU expects Qatari banks' lending and deposit growth to "pick up further" in the coming years as the government continues to increase infrastructure spending.

Qatari banks have been tapping the international market and issuing new shares to fund new projects. Bank credit to Qatar's contracting sector (including real estate) rose by 17% year on year (y-o-y), to QR113.75bn ($31.25bn), and accounted for 20.76% of total domestic credit in May 2014, EIU said citing QCB data.

The sector has emerged as the second-largest consumer of bank loans after the public sector, which typically accounts for more than 40% of domestic credit. (In May its share stood at 43.4%.) The growth was mainly due to the roll-out of a raft of infrastructure and 2022 FIFA World Cup-related projects. The private sector accounted for 56.6% of the total domestic credit of QR547.7bn.

The International Monetary Fund has warned against the "growing exposure" of Qatari banks to large borrowers (mainly contractors), but the QCB has capped total investment and credit to a single customer or borrower group at 25% of the total capital and reserves of a bank in an effort to mitigate such risks.

Qatar Airways Baku

In May, total domestic credit grew by 9.8% year on year, to QR547.7bn, while deposits rose by 14.7%, to QR585.5bn. Borrowings by the private sector were up by 16.2%, to QR309.84bn, and by the public sector by 2.47%, to QR237.9bn, EIU said.

Meanwhile, private-sector deposits rose by 15%, to QR315.5bn, and public-sector deposits by 21%, to QR235.6bn. Foreign currency constituted the largest portion of the increase in the public sector deposits -- up by 28.4%, to QR152.6bn.

The increase in total deposits helped to narrow the loan-deposit ratio to 102.37% from a high of over 106% in May 2013. Meanwhile, the rate of non-performing loans remained unchanged at a low 1.9% of total loans. Overall, the total assets of commercial banks grew by 8.55% year on year, to QR945.7bn, in May 2014, the report said.

EIU maintained its view that Qatari banks' credit growth would accelerate in tandem with planned government spending on infrastructure projects. Nonetheless, EIU said it will "continue to monitor any build-up of risks in the real-estate sector as more loans are directed to construction."

source: Gulf Times