Qatar’s 18 domestic banks have consistently shown their resilience in the past year, and many have shown that even in the face of the blockade, they can remain profitable and build assets.
Much of that can be attributed to the strong support shown by the Qatar Central Bank (QCB). Outflows of non-resident deposits from banks totalled about $13bn at year-end 2017, but liquidity injections by QCB and public-sector deposits to support the banks more than compensated for that at $40bn.
According to ratings agency Moody’s, government deposits accounted for 38% of total deposits in the system as of March 2018, up from 26% just before the beginning of the regional dispute, offsetting foreign funding outflows.
QCB Governor Sheikh Abdullah Bin Saud Al-Thani says foreign currency deposits by government institutions, which supported liquidity in the banking system, has been largely stable during 2018. On the other hand, non-residents deposits are steadily returning.
Looking forward, Qatari lenders see renewed opportunities for growth. For example, the government remains committed to large infrastructure projects in the build-up to 2022 FIFA World Cup, and rising oil prices translate into stronger economic activity – and therefore more credit requirements.
“Qatar’s economic foundations remain strong, with stable triple A credit ratings, large sovereign reserves, and an economy demonstrating sustained GDP growth,” says Joseph Abraham, Group CEO of Commercial Bank of Qatar. “As banks’ activities closely follow the performance of the nation, the banking sector is benefitting from Qatar’s growing economy,” says Joseph Abraham, Group CEO of Commercial Bank. “As banks’ activities closely follow the performance of the nation, the banking sector is benefitting from Qatar’s growing economy.”
Liquidity and assets positions have been strengthened under guidance form the QCB. The central bank introduced new loan-to-deposit requirement of 100% that came into effect in January 2018.
As the IMF noted in its May 2018 Article IV assessment of Qatar, even under severe shock scenarios, Qatari banks meet the relevant regulatory standards. QCB’s stress tests for December 2017 suggest that the banking system is resilient to severe shocks.
That leaves Qatari bankers in confident mood. Ali Ahmed Al-Kuwari, QNB Group CEO, sees healthy loan growth of 10% in 2018 and 2019, reflecting higher credit demand in both the public and the private sectors.
“Government policies targeted to strengthen the private sector and on-going infrastructure projects will support credit demand,” says Al-Kuwari. “QNB is committed to invest in Qatar’s future and it continues today with significant financing support deployed on major projects that aid the continued diversification drive. We remain focused on four primary areas: utilities, transport, 2022 FIFA World Cup infrastructure, and real estate.”
Governor Sheikh Abdullah notes that private sector loans have been growing at a steady rate, in a sign of the non-oil sector’s underlying health. “The y-o-y growth in private credit at end-June 2018 stood at over 10% while that of public sector credit was almost half at just over 5%. There is no crowding out of private credit. Moreover, with the current thrust towards promotion of SMEs and diversification of the economy, the share of private credit should rise,” he says.
Qatari banks are doubling down on improving efficiency levels, for example by raising long-term funding at cheaper rates. A report issued by consultants KPMG found that listed banks in Qatar enjoy some of the lowest cost-to-income ratios in the region, with Qatari institutions making up five of the top six banks in in terms of cost to income, as at end-2017.
According to Bassel Gamal, Group CEO of QIB Group, most banks’ focus in the future will be to “manage the increasing funding cost (following the Fed’s recent interest rate increases), look for efficiencies across the entire organization and make sure to target high quality assets as they keep on growing their portfolios”.
Qatari lenders are increasingly looking beyond their domestic market, with overseas opportunities emerging as means of ensuring continued growth.
For example, Commercial Bank’s growth has been supplemented by its Turkish subsidiary Alternatif Bank’s strong top-line performance in the first half of 2018, which has been revitalised by a recent change in leadership and a rebranding exercise, according to Abraham.
QNB meanwhile aims to strengthen its presence in markets where it has already entered. “We plan to continue to strengthen our contribution from our previous acquisitions in Egypt and Turkey. In both these markets, we see further growth potential along with a pickup in economic growth,” says Al-Kuwari.
QNB is specifically targeting the ASEAN economies – export-oriented economies that exceeded global economic growth in the last two decades. Growth in these markets is expected to continue. “In 2017, we opened our first branch in India,” says Al-Kuwari. “The Indian economy is the seventh largest in the world and one of the fastest growing major economies. It has expanding trade and population ties with Qatar, the Middle East, Africa and Southeast Asia more broadly.”