Global Arab Network | Fitch: Qatar-based Banks Emerge Relatively Unscathed from the Global Crisis

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Fitch: Qatar-based Banks Emerge Relatively Unscathed from the Global Crisis

- Talal Abdullah

Thursday, 02 September 2010 14:53

Qatar (Doha) - Fitch Ratings says in a special report today that Qatari banks have emerged relatively unscathed from the global financial crisis and regional downturn displaying strong financial profiles, although high credit risks, taken during the lending boom, continue to pose challenges for the sector.

Qatar's booming economy and robust banking support measures were among the regional highlights of 2009. Unlike regional peers, Qatari banks delivered strong profitability and displayed healthy asset quality, liquidity and capital indicators. As a result, they also distinguished themselves by being the only banks in the region to avoid any Fitch-related rating downgrades in 2009.

Despite these positive factors, Fitch believes that Qatari banks continue to face high credit risks on loans to domestic real estate and construction segments which continue to pressure banks' standalone risk profiles.

"Qatari banks' non-performing loan (NPL) ratios are currently very low, and among the best in the region," says Mahin Dissanayake, Associate Director, in Fitch's Financial Institutions team in Dubai. "However, Fitch warns that this could change due to the ongoing problems affecting the real estate and construction segments and the spill-over into the wider economy."

"More evidence of potential NPLs can be seen in the high levels of renegotiated and past due loans which suggest that current low NPL ratios may understate reality" Dissanayake adds.

Recent government support for key real estate developments is positive and the State's ongoing investment drive could improve the credit environment, although Fitch believes that the private sector is likely to remain stressed for some time.

The agency views the banking sector's liquidity as strong overall, boosted by the Qatari government's purchase of bank assets (local equities and certain loans) in exchange for cash and government bonds in 2009. Banks are primarily customer deposit funded, although a general shortage of deposits in the system has led to fairly high loans/deposits ratios. Unlike many banks in the region, Fitch believes Qatari banks have good access to the international capital markets due to positive investor sentiment on Qatar, reflecting the country's strong macro-economy and the success of its banking support measures.

Capitalisation has also been strengthened by direct capital injections by the Qatari government, which saw the government take 10% equity stakes in all the country's banks apart from QNB (which is already 50% government-owned). Although the banks' tier 1 and total capital ratios are currently acceptable, the agency considers that higher levels of capital are appropriate given the rapid credit growth and high sector concentrations built up over the past few years.

Fitch believes that the outlook for Qatari banks is generally encouraging. Increased project activity is likely to be the main catalyst for future asset and revenue growth and banks should remain profitable in FY10. However, likely asset quality deterioration could mean that profit growth expectations are moderate.

Fitch has maintained its Stable Outlook for the sector, reflecting government support and Qatar's strong economic fundamentals.

Global Arab Network

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