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For Qatari residents: Do you prefer a summer or winter World Cup 2022?

The Fine Art of Qatari Finance

Written by  Author |   Fri, 05 October 2012 11:11

Backed by sound regulations, Qatar's banking institutions are playing a key role stimulating the construction sector

If the banking system in a country is effective, efficient and disciplined, it can bring about rapid growth in various sectors of the economy.

Banking systems and Financial Institutions play very significant roles in the economy, catering to the need of issuing credit facilities for those who need it, from big time investors involved in mega developments to small and medium size enterprises. Credit availability for infrastructure development is also extremely important, especially, and perhaps fortunately, that in the past decade, there has been increased participation of the private sector in these projects. Today, the Qatari banking sector enjoys a strong presence with excellent capitalization ratios which are the highest in the Arab region and beyond those required by the Basel Convention II. The average ratio of capital to assets reached 11.1% at the end of 2010 and the solvency ratio is at 15%, according to Basel II

Qatari Banks , Future & Role

Qatari banks are developing rapidly and in the right direction. Qatari banks receive the full support of the State through Qatar Central Bank, whose role is to increase the immunity and strength of the Qatari banking system to keep pace with the best international practices in this field.

The Qatari banking sector is characterized by its great ability to make profits. This ensures an important profit for investors, a great capacity to fund State projects and solid support for Qatari banks to carry on their success story. The particular Qatari legislations and laws provide the country with a monetary policy that is favorable for an economic boom. This is clear through the ability of the banks to maintain their credit rating at the global level while other international banks have witnessed a decline as a result of the global financial crisis. Besides, all indicators show that the investment climate in Qatar is encouraging and that liquidity is available in the market. Qatar's national economy is thus achieving the highest levels of growth not only in the region but also worldwide.

Liquidity in Qatari banks have greatly risen over the past years. In fact, they are now able to meet the funding requirements of projects related to World Cup 2022 which could reach $120 billion. Such liquidity rise is largely attributable to the continued growth in foreign net assets and the rise of the private sector's domestic credit. The financial surpluses held by Qatari banks need to be invested. Meanwhile, Qatari banks are too savvy to make hasty investments.

The QCB has taken several measures in order to manage domestic liquidity including. To mop up excess liquidity, the QCB has issued treasury bills. Last October the bank was selling QR2 billion of T-bills every month; in April it announced that the monthly issuance had risen to QR4 billion and the bank would continue that volume.

The QCB has always stressed on the need to link its currency (Qatari riyal) to the U.S. dollar and is committed to the policy adopted by the Council of the GCC Monetary Union which is based on riyal's peg to the dollar. The QCB is no stranger to the problem of excess funds. In December 2010, funds parked at the Central Bank's deposit facility have reached a peak of QR634.3 billion. The rise prompted it to make a series of cuts in the rate on the facility: by 50 basis points in August 2010, and by a combined 75 bps in April and August 2011.

The Central Bank aims to encourage the use of money for lending in the real economy, and wants to bring its rate closer to its US Benchmark, the Federal Reserve's fed funds target range of zero to 0.25 percent. Since the Qatari riyal is pegged to the US dollar, the Central Bank can't keep too large a gap with US rates without inviting fund inflows.

Qatari banks achieve very high profitability ratios. It is noteworthy that these banks were not significantly affected by the global financial crisis that led to the bankruptcy of many U.S., European and other banks.

Commercial banks in the State of Qatar are committed to forming committees to evaluate the accounts of credit facilities granted to their customers and classify them once each year in line with the international standards set for each group or category as follows:

1 - Normal loans: These are loans that have full guarantees such as cash or assets guarantees. The ability to serve loans classified in this group take into consideration the ability to pay installments and interests.

2 – Supervised or specified loans: This category applies to borrowers whose operations are on the decline or who face an imbalance in their financial positions. However, they have not reached the point that affects their payment of these loans yet.

3 - Non-performing loans NPL: This category applies to loans whose main source for payment is insufficient and consequently the bank must look for secondary resources (other resources) for payment such as the given guarantees or selling some fixed assets. Usually, they are loans whose cash is insufficient to repay them in the due date. Due loans that have exceeded 90 days at least are classified within this group.

4 – Doubtful loans: They include arrears of 180 days after due date.

5 - Bad loans: They include unrecoverable debts whose date of payment has exceeded one year.

Government support

The resilience of the banking sector, according to financial services at Standard & Poor's, is "above average," which is "mainly due to the combination of lower exposure to structured investment products" and the proactive role taken by the Qatari government. For example, in the fourth quarter of 2008, the Qatar Investment Authority (QIA) announced its plans to acquire between 10 and 20 percent ownership in every local bank — of which there are 11 total — helping to increase confidence across the banking sector and to boost liquidity conditions in the market. More recently, at the end of March 2009, the government purchased $1.8 billion worth of local banks' investment portfolios in order to share the burden of such funds, revive lending, boost liquidity and support the economy.

The lending and investment policies of the Qatari banks

Policy of real estate financing :

The maximum amounts granted as credits to all customers to finance real estate are fixed according to the following criteria :

1 –These amounts mustn't exceed 150% of the bank equity or 15 % of customers' total deposits, whichever is less.

2 - As for Islamic banks, the percentage mustn't exceed the average of the total amount of 150 % of the bank equities and 15 % of customers' total deposits.

3 - The credit provided to finance construction projects must not exceed 65% of the total cost of the project.

4 - The credit provided to finance the projects of buildings must not exceed 65% of the total cost, and the borrower has to finance the remaining costs from his own resources. Besides, the bank should ensure that the borrower has really used his own money in the project before using the credit facility granted to him for this purpose. The banks that grant loans to customers for real estate financing and exceed the above-mentioned ceilings or do not abide by the instructions will be subjected to fines and penalties by the Qatar Central Bank, as stated in the law.

The following funds are an exception :

1 – Real estate financing granted to the government or guaranteed by the government and its institutions.

2 – The financing granted to contractors that have contracted for real estate development projects for the benefit of public or private institutions.

3 – The financing that is covered by the customers' deposits as collateral, provided that such facilities do not exceed the value of the provided guarantees.

4 – The financing guaranteed by banks having a good financial status; provided that the guarantee is unconditional, covers the entire value of the loan, and can be renewed automatically until the customer completes full payment of the amount of the loan.

5 - Real estate financing granted to natural persons in return for their salaries, or guaranteed by their income only.

Policy of credits concentrations :

- The maximum limit of credit facilities granted by the Bank to the credit group must not exceed, per customer, 20% of the bank's capital and reserves.

- The maximum limit of credit facilities granted by the Bank to the credit group, for the main shareholder of the credit, must not exceed 10% of the Bank's capital and reserves.

- The total investment and credit facilities granted to the credit group per customer must not exceed 25% of the bank's capital and reserves.

- The maximum limit of credit facilities granted by the bank to subsidiary or "sister" companies must not exceed 20% of the bank's capital and reserves.

- In all cases, the credit granted per customer and his credit from all banks shall not exceed 2000 million Riyal maximum.

- The credit facilities granted in the same country either in the form of loans to customers or to the country must not exceed 40% of the bank's capital and reserves.

Except for :

- The credit facilities granted to the government or government institutions or guaranteed by it.

- The credit facilities covered by deposit insurance or cash.

- The credit facilities covered by unconditional bank bails and renewed automatically by a bank or a financial institutions having a good financial status.

Policy of project finance

In general the Banks' lending policies to contractors is based on the following :

  • Financial position of the contractor
  • Contractor's ability to execute projects
  • The size of projects which have been implemented
  • Works under execution
  • Management
  • Assignment of proceeds in addition to partners' personal guarantees

Financial policies and banking

The Qatari financial system has made serious and concrete steps in recent years in order to confirm the principle of credibility. The series of plans and the efforts made by State agencies have contributed in maintaining financial and economic stability enjoyed by the entire nation. The State's specialized Directorate has conducted regulatory and supervisory activities in addition to diagnosing operations to solve financial challenges. Qatar's Center for Credit Information was established to help support the sustainable growth of State credit and supply the banking sector with local data. In fact, such data are meant to serve both the banking sector and the national economy.

It is also expected that the Securities Center starts work in the first half of next year in order to create a better investment climate for investors. The global financial crisis that affected the world in 2008 played a major role in confirming the need for the role of the Center for Credit Information. From now on, this center will have a significant impact in supporting the banking activity and reducing risk probabilities on the banking sector. The Centre was able to collect all information needed on individuals and corporations within a relatively short period.

In fact, Qatar has sought to develop a consistent monetary policy in order to reflect market facts. Although Qatari banks were relatively affected by the global collapse, the state interfered to support the sector given the latter's importance in development and economic progress. In fact, the Government promoted the ability of banks to fulfill their financial commitments and to expand credit through reducing the inherent risks to their investment funds. With this kind of commitment, the financial sector can not only tackle the investment challenges it faces with country's push forward, but also withstand the risks involved with it.

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