Doha Bank, the second-best-performing lender on the Qatar Exchange over the past year, plans to take on debt as investor perceptions of the nation’s credit risk improve, the chief executive officer said.
Options include selling senior or subordinated debt in the second half to strengthen the balance sheet by reducing the mismatch between short-term assets and long-term liabilities, Doha Bank Group CEO R Seetharaman said in an interview on Wednesday. Five-year credit default swaps insuring Qatari debt declined nine basis points since December 1 to 57 basis points at 12.38pm in Doha, according to data provider CMA.
“Credit default swap rates are coming down significantly from December,” Seetharaman said in his office in Doha. “It’s a good welcome change, so debt procurement is planned.”
The decline in credit default swaps comes amid signs of a pick-up in world economic growth with the International Monetary Fund planning to raise its forecast in about three weeks, managing director Christine Lagarde said this week. Doha Bank’s shares jumped 29% in the past 12 months to 62.50 riyals, as the lender completed a capital increase last year that attracted almost two times more bids than stock on offer.
“Equity comes first, which we already accomplished,” Seetharaman said. “Now it’s time for the debt.”
The yield on Doha Bank’s 3.5% bond maturing in March 2017 declined 15 basis points, or 0.15 percentage point, to 2.44% last year, compared with a 42 basis-point jump to 3.55% for the HSBC/Nasdaq Dubai Middle Eastern Conventional Financial Services Index.
The bank, which last year opened offices in Australia, Canada, Hong Kong and Sharjah in the UAE, plans to increase the proportion of assets outside Qatar to 30% from 10% as the domestic market is “grossly over-banked,” Seetharaman said.
Qatar has 11 domestic and seven foreign banks competing in a country of just over 2mn people.
Doha Bank plans to open a branch in Mumbai before June after receiving permission from the Reserve Bank of India last month. Seetharaman said he hopes to amass as much as $10bn of assets in India within three to five years. The bank is also seeking permission to start operations in Saudi Arabia, he said.
Doha Bank is expanding abroad along with QNB, Qatar’s biggest lender, which bought the Egyptian unit of Societe Generale last year. Commercial Bank purchased a 74% stake in Turkey’s Alternatifbank.
Competition between banks is reducing profits from lending, Seetharaman said. Doha Bank’s net interest margins shrank to 2.96% at the end of last year from 3.6% two years earlier, he said.
“The margins will continue to go down because we know the cut throat competition,” he said. “Incremental growth comes out of India and China. Those are the markets we need to target.”