Global Arab Network | Profitability Remains High - Stable Outlook for Qatar Banking System

Translate this article to your language:

GANPublications

e-Publications

Add Site to Favorites

Add Page to Favorites

Make Homepage

Share This Page

RSS Feed

--------------------------------------------------------------------------------------------------------------------
| |

Profitability Remains High - Stable Outlook for Qatar Banking System

Global Arab Network - - George Haddad

Monday, 14 June 2010 09:41

The outlook for the Qatari banking system is stable. The Qatari banking system has weathered the global financial crisis relatively well thanks to the country’s enduring macroeconomic growth and the government’s repeated and timely interventions during 2009.

For 2010, Moody’s expects Qatari banks’ pre-provision profitability to remain at good levels and to be supported by higher business volumes and a low cost base. The banks’ net profitability, however, is likely to continue to be affected by elevated provisioning expenses. Moody’s notes that the rated Qatari banks continue to report high levels of pre-provision profits, strong capital levels and a high loss-absorption capacity, all of which support their current ratings. Nevertheless, during 2009, their credit quality fundamentals deteriorated largely due to the elevated credit losses in their consumer lending portfolios and loans extended to the construction and the real estate sector. Taken together, Moody’s estimates that the banks’ non-performing loans grew by around 140% during 2009, resulting in elevated provisioning expenses and reduced bottom-line profits for most of the banks. Moody’s believes that the trend of growing problematic exposures in 2010 will gradually be arrested in line with the stronger macroeconomic conditions domestically and the banks’ increased focus on recoveries and on improving their overall risk management systems. On the efficiency front, Moody’s expects Qatari banks to continue to benefit from low-cost operations and to report strong efficiency levels that are supportive of their current ratings.

This reflects the Qatari banks’ solid franchise development in a strong macroeconomic environment and a highly supportive banking system, but also captures the challenges faced by the banks in maintaining good credit quality fundamentals and earnings in this small concentrated market.

Despite the modest slowdown in GDP growth in 2009, the local economy continued to expand at a strong rate, with GDP growth expected to record 11.4% in 2009 (compared to 15.8% in 2008). For 2010-2011, the Qatari economy is projected to expand at a rate of around 16%, mostly due to increased hydrocarbon production and elevated oil prices.

While the banks’ business expansion slowed down in 2009 in line with the global downturn and the resulting greater caution towards lending, Moody’s expects 2010 growth rates to gradually return to pre-crisis levels. This is likely to be supported by accelerated government spending in the hydrocarbon sector and the non-oil sector of the economy in 2010-2011. Also, the banks’ reinforced capital position – following the acquisition of a 10% stake in the local banks’ capital by the Qatari government – is expected to be deployed for growing their business activities.

The increased credit risk assumed by the Qatari banks in 2009 and the sizeable risk concentration levels on both sides of their balance sheets constrain any upward movement of the banks’ ratings.

Another constraining factor in terms of their risk assessment is the limited number of truly independent directors on their boards, a situation that is common to most banks operating in Gulf countries. Addressing both of the above issues will exert upward pressure on the banks’ risk positioning assessment and their Bank Financial Strength Ratings (BFSRs).

Despite increased competition in Qatar, Moody’s notes that the three rated Qatari banks – primarily Qatar National Bank (QNB), which is the dominant government-owned institution in the country, but also Commercial Bank of Qatar (CBQ) and Doha Bank – have well-established market positions, which will continue to underpin their BFSRs.

Also, going forward, all three banks are likely to continue to benefit from a high level of support from the Qatari authorities, which provides an uplift to their deposit ratings. This support has been clearly demonstrated in 2009 and helped local banks maintain relatively good profitability levels while ensuring the sector’s financial stability. Specifically, the support came in the form of: (i) a direct capital injection in the banks (with the Qatari government buying a 10% share of listed banks’ capital); (ii) the purchase of the banks’ listed equity shares in the Qatari Stock Exchange; and (iii) the acquisition of part of the banks’ real estate investment portfolio. These steps assisted the banks’ financials by reducing potential losses on their books.

Global Arab Network

Extracted from report of Mr Anouar Hassoune, VP-Senior Credit Officer at Moody’s Paris office.

Add comment

The opinions of the authors in articles published are theirs alone and do not necessarily reflect the views of Global Arab Network
------------------------------------------------------------------------------
Published comments are the opinions of private individuals and do not reflect the views of Global Arab Network