Qatari banks’ liq­uid­ity woes risk loan growth: S&P

The Pak Banker - - FRONT PAGE -

Qatari banks is ex­pected to see mod­er­ate loans growth over the next 18-24 months, ac­cord­ing to rat­ings agency Stan­dard & Poor's (S&P).

The bank­ing sys­tem's loan-to-de­posit ra­tio rose to 116.8 per cent as of Novem­ber 30, 2015, up from 103.4 per cent a year ear­lier as lend­ing con­tin­ued to grow faster than de­posits. "Given our ex­pec­ta­tions for con­tin­ued slow de­posit growth and the bank­ing sec­tor's al­ready high loan-to-de­posit ra­tio, we an­tic­i­pate that banks will man­age credit growth more con­ser­va­tively," said S&P credit an­a­lyst Nadim Ama­touri. The an­nual lend­ing of Qatari banks had risen 19.4 per cent as on Novem­ber 30, 2015, largely on a 23.6 per cent jump in loans to the pri­vate sec­tor.

Pub­lic-sec­tor lend­ing was up by just 6.8 per cent in the same pe­riod as a re­sult of the govern­ment's stream­lin­ing of pro­ject ex­e­cu­tion. Al­though Qatari banks con­tinue to op­er­ate with some of the best as­set qual­ity met­rics in the Gulf Co­op­er­a­tion Coun­cil (GCC) re­gion, an­a­lysts say some de­te­ri­o­ra­tion over the next few years is likely while banks are ex­pected to face a slow­down in net in­come growth.

"We think growth in banks' net in­come will vis­i­bly slacken, in line with our ex­pec­ta­tions for slug­gish rev­enue growth, ow­ing to slower lend­ing growth and our pro­jec­tion that credit losses will in­crease be­cause of lower re­cov­er­ies and grad­ual as­set qual­ity de­te­ri­o­ra­tion," said S&P credit an­a­lyst Timucin En­gin. Some of Qatar's lead­ing banks re­duced their div­i­dend pay­out ra­tios for 2015 earn­ings, in part to pre­pare for the now more chal­leng­ing op­er­at­ing en­vi­ron­ment.

But banks in gen­eral con­tinue to main­tain strong cap­i­tal­i­sa­tion with an av­er­age Tier-1 ra­tio above 14 per cent. De­spite strong profit gen­er­a­tion and sev­eral rounds of new cap­i­tal rais­ing (in the form of both com­mon stock and per­pet­ual notes el­i­gi­ble as Tier-1 cap­i­tal un­der Basel III), the av­er­age Tier-1 cap­i­tal ra­tio for the banks has stag­nated over the past few years, largely due to the high pace of loan growth dur­ing the past few years. High div­i­dend pay­out ra­tios have also con­trib­uted to this stag­na­tion.

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