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

Banks to provide Qatar's $100 billion construction need

Written by  Author |   Mon, 30 September 2013 08:08

Banks in Qatar have enough liquidity to provide the capital and finance mega projects worth more than $100 billion in the country up to 2022 and beyond, according to report.

The metro alone is going to cost about $35 billion and the port project between $7 billion and $8 billion. Then there are roads, electricity and water, sewage, Aviation City, stadia for the World Cup in addition to hotels, new shopping malls and Lusail City.

"The bonding requirements for these projects will be a percentage of these numbers and that's a very complex algorithm. We expect infrastructure finance demand will be in excess of $100 billion," indicates the report.

Qatar's financial sector has already been a key foundation of its rapidly developing economy, with finance, insurance and reinsurance outputs now accounting for about 10% of the country's GDP last year. Yet, total assets for Qatar's banking industry has increased at a compound annual rate of 30% in the last 10 years to almost $225 billion, while bank lending to domestic customers has grown by a similar amount in the same period to $130 billion. "Huge further increases in deposits with local and international banks operating in Qatar are also expected and will be provide huge leverage for domestic borrowers," the report says.

Bankers say they expect the aggregate balance sheets of Qatar's banks will continue growing as government investment in projects flows to construction companies and other service providers. Huge further increases in deposits with local and international banks operating in Qatar are also expected and will be provide huge leverage for domestic borrowers.

An emerging issue is the capacity of local banks to absorb the volume of business being generated by the major Qatari projects. "That is why we will increasingly see local banks coming together to finance these large projects. Regional and foreign banks are also increasingly coming in to get a share of the action in Qatar," added the report.

Despite the massive activity currently taking place in Qatar's projects industry and its continued rise in the next few years, there is a consensus among experts that the country's regulators should manage the timing of major infrastructure finance transactions.

Gulf's financial hub?
On the other hand, Qatar is bidding to become the Gulf region's financial hub, introducing a new regulatory framework for financial institutions and other initiatives to facilitate growth in the banking sector. By putting a cap on banks security portfolios to 25% of their capital and reserves, the Qatar Central Bank hopes to avoid the mistakes of the global financial crisis which was largely precipitated by the massive debt exposure of banks.

Qatar brought in two very important laws in 2012; the first was law no. 8 of 2012 on Qatar Financial Markets Authority. The second is Law No. 13 regulating the functioning of Qatar Central Bank. The laws basically restructured the framework of the work of the financial sector in the country.

The new laws were an important step towards regulating financial services and enhancing financial stability. The law also set a framework for cooperation between Qatar Central Bank, Qatar Financial Markets Authority and Qatar Financial Center Authority.

The laws were a healthy update on the regulatory framework that governed the financial sector in Qatar and would elevate the State's status as an international financial hub. The regulatory role of Qatar Financial Markets Authority aims to protect investors and the stability of the market. The authority also regulates the activity of listed companies through each company's disclosure statements.

Actually, the political and economic stability, as well as the flexibility of the banking sector, help Qatar pursue its goal of developing based on Qatar 2030 vision and Qatar National Development Strategy 2011-2016, despite global economic instability. The GDP in 2012 stood at 12.2 percent, more than $192 billion.

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October / 10 / 2014
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