Risks remain on structural mismatches in Qatari banks’ balance sheets, credit concentration and the country’s heavy reliance on hydrocarbons, according to S&P.
Qatari banks’ profitability is likely to remain “strong” over the next 12 months, even as risks remain on “structural mismatches” in their balance sheets, credit concentration and the country’s heavy reliance on hydrocarbons, according to global credit rating agency Standard & Poor’s (S&P).
Qatar’s banking sector has been classified under Group ‘4’ (the fourth-lowest risk category on a 1-10 scale) under S&P banking industry country risk assessment criteria.
“High interest margins, although contracting; briskly increasing business volumes mainly on the back of the government’s investments; and banks’ generally low cost bases are the main factors fuelling this performance,” S&P credit analyst Mohamed Damak said in a report.
In this largely favourable environment, and given the solid economic growth, S&P said “we forecast in Qatar over the next few years, lending will continue to increase by about 10%-15% per year.”
S&P considered the strong economy, which will support business volumes. But in the less lucrative segment of government-sponsored projects, the drop in yields on Qatari government bonds over the past three years and banks’ replacement of these holdings and stiff price competition on the deposit side, banks are offering higher prices to attract and retain large corporate deposits inside Qatar or from other GCC countries.
On the risks, it said the normalisation of interest rates in the US within the next two years could be the most immediate damper on banks’ profitability.
“A steep increase in the US interest rates could squeeze Qatari banks’ interest margins because of the structural mismatch of their balance sheets, which carry long-term assets and short-term deposits,” it said.
Highlighting that the current structure of Qatari banks’ revenues and the short duration of their liabilities leave them exposed to the risk of an upward revision in the monetary policy steering rate in Qatar, it said “we think a 100 basis-point increase in interest rates will push profits of the Qatari banks we rate down by about 9% on average.”
Mirroring the small size of the economy, it said high single name and real estate sector concentration expose Qatari banks to the tail risk of default of top names or to setbacks in the real estate sector.
Like other banks in the GCC, Qatari banks’ loan portfolios remain heavily concentrated on large borrowers, the report said, adding the top 20 loans represented almost 45% of total loans on average at year-end 2013.
During the 2009 real estate correction, though, the government shielded the banking system by providing “significant and timely” support. In addition, banks’ increasing appetite for geographic expansion in riskier countries could weigh on their financial profiles and performance, it added.
However, over the past three years, there has been a slight increase in Qatari banks’ cost of risk because of additional provisions on loans to contractors and real estate developers and the cost of cleaning up Qatari banks’ newly acquired affiliates outside Qatar.
Moreover, S&P noted that Qatari banks’ capitalisation has not benefited from their strong profitability, due to their very aggressive dividend policies compared with other GCC banks.
Observing that heavy reliance of the Qatari economy as well as the government accounts on the large oil and gas sector exposes the country to a sudden and persistent drop in oil and gas prices, S&P said under such a scenario, the banking system could suffer through its exposures to large investment projects or to the expatriate retail segment.
“That said, we do not currently expect such a fall to occur within the next 24 months. For 2014 and 2015, we assume oil prices will remain above $95 per barrel,” it noted. Gulf Times
Qatar ranks No. 2 in per capita GDP
DOHA: As a result of real estate boom and massive infrastructure development, Qatar ranked second among the world’s 30 leading countries in terms of per capita contribution to Gross Domestic Product (GDP) from ‘built assets’ estimated at $20,630 (QR75,124) in 2013, closely followed by the UAE, according to a global study released yesterday by EC Harris, a UK-based real asset consultancy.
Qatar, the host of 2022 Fifa World Cup, is only behind Singapore ($29,500) and ahead of the United Arab Emirates ($17,470), USA ($17,460), Hong Kong ($16,340) and Japan ($15,450). While Germany ($12,730) and France ($12,720), Europe’s largest and second largest economies have stood at 9th and 10 positions, respectively.
Launched by EC Harris, an ARCADIS company and built asset consultancy firm and developed in conjunction with the Centre for Economics and Business Research (Cebr), ARCADIS’ Global Built Asset Performance Index, the landmark study illustrates how buildings and infrastructure contribute to GDP across the world, including Qatar.
Terry Tommason, Head of Qatar Property and Social Infrastructure, at EC Harris said: “Qatar is one of the prosperous performers ranked second out of 30 countries in terms of generating GDP from its built environment on a per capita basis. The economy generates significant income per capita from its built asset wealth than many countries which bodes well for future economic growth. Furthermore, the entire Middle East market is expected to show robust growth of 29 per cent in per capita terms over the coming decade and has the potential to raise built asset returns quickly.”
On an absolute basis, however, Qatar ranked 30th out of the 30 markets surveyed, due to its relatively small geographic size and population. On this basis, China, India and Japan all featured in the world’s top five markets in terms of GDP generated from built assets, with the USA and Germany completing the top five.
Tommason added: “From our research we can see that countries face many different challenges in order to maximise the performance of their built assets. While some countries are proactively managing their built asset wealth to put them in pole position to reap the economic returns over the coming decade, others are in danger of failing to invest in their aging built asset base leading to a slow decline in their economic power. Sustaining a built asset base that protects the environment, enables people to thrive and creates economic value is possible but a clear long-term vision to deliver this infrastructure is absolutely essential.”
In terms of future performance, Singapore did not fare as well. While Asia is by far the region that is expected to see the biggest built asset performance expansion by 2022, with eight of the world’s top 11 markets expected to see the most growth are located in Asia, Singapore and Japan were the economies not to be in the world’s top 11. China, Indonesia, India and Malaysia were all in the top five for projected built asset performance by 2022.
The Index illustrates, for the first time, how Singapore compared to 29 other countries that collectively represent 82 percent of global GDP and are a mixture of both advanced and emerging economies. The Index also reveals that total built asset income within these countries stood at $27.2 trillion, amounting to 40 per cent of total GDP. This figure is expected to rise to $28.2 trillion in 2014. The Peninsula