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