Interview: QNB Group

The successful preparation and organisation of the 2022 FIFA World Cup — the largest event ever hosted in the region — led to strong economic growth. The momentum associated with the event contributed to an 8% year-on-year GDP growth for Qatar in Q4 2022, the strongest performance in more than a decade. Importantly, Qatar’s non-energy sector was particularly buoyed, with close to 10% growth during the same period.

The event further consolidated the country’s position as a regional and international hub for business, investments, commerce, tourism and culture. This accelerated the execution of the Qatar National Vision 2030 and assisted in the transition towards a knowledge-based economy. Private sector growth will be boosted by continuing structural reforms — including ownership liberalisation — the promotion of foreign direct investment, labour reforms, the permanent residency program and initiatives to support SMEs. Increasing self-sufficiency in strategic sectors, such as food security, will also provide support.

Tailwinds from increasing hydrocarbon production will help drive economic growth over the next decade. Six new LNG liquefaction trains are planned to increase Qatar’s LNG production by 64% to 126 million tonnes per annum under the flagship North Field Expansion (NFE) project. This should maintain Qatar’s leading position within this strategic segment for global energy security and the energy transition. The NFE is one of the largest capital expenditure projects regionally and industrial projects globally. The project will include an equivalent expansion of Qatar’s refining, downstream, petrochemical and fertiliser capacity.

Positive spillovers from these projects will combine with diversification efforts and structural reforms to boost economic activity and spending in the broader manufacturing and services sectors. We see continued economic expansion in 2023 and 2024, before the NFE will further accelerate GDP growth from 2025 and beyond.

The multi-billion dollar NFE is a major opportunity for banks as financial partners to support large scale infrastructure development in the coming years. The banking sector can mainly support the NFE through credit facilitation in two areas: credit to contractors working on project development and execution as well as funding of projects in adjacent downstream petrochemical industries and sectors. The first contribution can range from the financing of LNG mega-trains to wells, pipelines, LNG storage tanks and new LNG tankers. The downstream and petrochemical-related contribution could include support for new plants for liquefied petroleum gas, helium plants as well as other related petrochemical projects.

The economy will also benefit from the spillover effects of the LNG expansion on a wider scale through the inflow of a new qualified labour force to Qatar. Banks can support this evolution through the provision of all typical banking services around payments and transactions, financing, saving, investing and bancassurance services in the retail banking space.

Last but not least, the execution of Vision 2030 and the transition towards a knowledge-based economy will drive economic activity and spending in the broader manufacturing and services sectors. Banks are well positioned to support this private sector growth and engagement. They can act as a one stop shop through their various financing services and transaction banking services, such as trade finance and cash management, payments, merchant banking and e-commerce-related services.

There has been a significant tightening of monetary conditions since March last year, when the US started to raise interest rates. But overall credit demand in Qatar tends not to be significantly impacted by rate increases, given the dominance of government-related capital expenditure projects as well as other autonomous investments from the private sector. We expect that the capex associated with the NFE and its ancillary projects will drive credit demand over the medium term.

Liquidity conditions in Qatar and the region are also impacted by oil prices, which are still providing large fiscal account surpluses that can be directed into the local banking system. The banking sector remains resilient and healthy. We see significant growth, ample liquidity, adequate levels of capitalisation, high asset quality and robust profitability. Total assets grew by 4.2% in 2022, driven mainly by strong private sector activity. During the same period, growth in domestic loans and deposits was also healthy and stable at 4.4% and 2.6%, respectively. Banks remain well capitalised, with a capital adequacy ratio of 18%, well above Basel III guidelines. Asset quality also remains strong with non-performing loans at 2.4%. Overall sector profitability is solid, with return-on-equity at 14.7%.