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




Qatari banks: Deposit driven and shock resistant

Written by  Author |   Mon, 12 August 2013 13:13

Qatari banks had been experiencing solid activity and growth throughout 2012 and so far this year as well, with the healthy economic performance buoyed by ongoing government infrastructure spending and non-hydrocarbons sector growth providing a strong operating environment for banks.

Measured by total assets of banks operating in Qatar, total sector activity grew by 17.6% year-on-year in 2012, and by a further 5.5% in the first four months of this year to reach $236.6 billion at end of April 2013.

Total deposits, a major contributor to total balance sheet growth accounting for 61% of total bank assets, supported activity growth throughout the covered period. As a matter of fact, deposits at Qatari banks grew by 26 % last year. The breakdown of total deposits by type of depositor reveals that the bulk of additional funding (around 58% of total deposits) stemmed from the supportive public sector, and more particularly time and saving deposits in foreign currencies from government institutions and which were significantly boosted during the second half of the year. The private sector accounted for close to 20% of total deposit growth last year, with the remainder (around 22%) accounted for by non-residents, within the context of healthy domestic economic activity and favorable conditions, especially when compared to some Middle Eastern peers.

So far in 2013, the resident private sector appears to have been the largest driving force of total deposit increase in Qatar, accounting for 52% of new deposits, while the public sector accounted for 46% of new funds at Qatari banks, and non-resident deposits almost standing still in the first four months of 2013.

Foreign currency deposits from government institutions continued to be the main contributor to public sector deposit growth this year, while in the private sector, retail and corporate deposits almost equally increased, with a slight advantage to the latter, amidst continuing healthy activity momentum in the Qatari economy. Overall, total deposits progressed by an additional 14.2% in the first four months of 2013, reaching a new high of $143.6 billion at end ofApril 2013, the equivalent of 76% of GDP.



Qatari banks benefit from a stable deposit-based funding structure which, although showing some deposit concentration, is mostly sticky with about 40% of deposits stemming from the broad public sector. Besides, banks have lately started to diversify their funding sources, tapping into international fixed income markets and taking advantage of their strong credit ratings and ultra-low borrowing rates. At the same time, the past accumulation of wholesale interbank foreign liabilities amid fast rising demand for credit exacerbated asset/liabilities maturity mismatches, with relatively short-term funding channeled into longer term financing. Part of such short-term foreign funding comes from European banks, though exposure to GIIPS (Greece, Ireland, Italy, Portugal and Spain) reportedly remains limited, and could raise refinancing risks. It is yet worth noting that adding to recent bond issuances, the recent stepped up deposits from the public sector helped banks limit their foreign borrowing, particularly interbank.

While liquidity strains for Qatari banks have eased relatively, lending activity did increase, and at a solid pace, especially during 2012. Total credit facilities grew at a similar pace to deposits in 2012 (+26%), with the biggest recipient of new loans being the public sector, accounting for 66% of new credit facilities, and government institutions leading the way. All sectors of activity reported rising lending volumes, notably real estate (around 9% of total new credit facilities) bearing in mind a good number of projects are linked to the 2022 soccer World Cup needs, though growth in real estate and retail loans decelerated last year mostly due to regulations on lending limits by the Central Bank.

So far in 2013, credit facilities growth decelerated (volume growth down 16% relative to the first four months of 2012), reporting +4.2% in the first four months of 2013 to reach $145.7 billion at end ofApril. This is partly due to the slowdown in credit facilities to government institutions, a practical standstill in those to the government, and a contraction in lending to semi-government institutions. Real estate lending volumes declined so far this year due to a decrease in April, within the context of fewer project awards this year, and delays in some infrastructure linked projects tendering. The largest contributors to additional credit facilities this year turned out to be the services sector (+$3.6 billion) and the non-resident sector (+$2.0 billion).

The rapid rise of credit volumes did not occur at the expense of asset quality, which remains among the very best in the region and beyond.

The sizeable quantity effect banks in Qatar benefited from last year offsets the rather tight spread environment and, coupled with relatively low provisioning needs and relatively healthy other revenues given favorable economic conditions, helped banks maintain overall solid profitability ratios. In fact, the net interest income to total income ratio moved upwards last year, from 53.0% in 2011 to 71.4% in 2012. Also, the return on average assets and return on average equity ratios stood at 2.4% and 17.7% last year as per Central Bank data, comparing more than favorably to regional and international averages.

Last but not least, Qatari banks remain well capitalized. Central Bank data indicates a relatively high regulatory capital to risk weighted assets ratio of 18.9% at end of 2012 which, although slightly lower than the 20.6% level at end of 2011 within the context of a higher denominator following the surge in bank lending, remains well above the 10% minimum requirement of the Central Bank and the 8% global regulatory threshold. More particularly, the bulk of banks' capital consists of Tier 1 capital, as the regulatory Tier 1 capital to risk weighted assets ratio stood at 18.2% at end of 2012, helped by capital injections on behalf of the Qatari public sector. While banks' internal capital generation is somewhat limited given relatively high dividend pay-out ratios, their sound capital adequacy levels provide them with sound growth capacities and more than adequate buffers against potential shocks.

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