Qatari banks defy pandemic impact
NET PROFIT RESILIENT DESPITE HIGHER PROVISIONING CHARGES AND PRESSURE ON YIELDS
The combined results of the eight Qatari banks remained strong despite the impact of Covid-19 on operating conditions and rise in provisions, according to rating agency Moody’s.
Aggregate profitability weakened marginally in 2020. The aggregate return on assets was 1.2 per cent, compared with 1.4 per cent in 2019. The banks’ combined net profit declined 12 per cent year-overyear to QR20.4 billion.
Five of the eight banks reported lower net profit. The decline in bottom-line profitability mainly reflected higher pandemic-related provisioning, which was partly offset by cost savings and higher net interest income.
“We expect bottom-line profitability to remain at the same level in 2021 in the context of slow economic activity, though it will remain relatively strong compared with regional and global peers,” said Nitish Bhojnagarwala, Vice-President — Senior Credit Officer at Moody’s Investors Service.
Moody’s expect Qatar’s real GDP to grow by 1.7 per cent in 2021 after contracting by 3.5 per cent in 2020 because of the coronavirus pandemic and decline in oil prices.
According to the rating agency, Qatari banks’ incomegenerating ability remains strong despite higher provisioning charges related to the pandemic. This reflects the Qatari government’s significant footprint in domestic banks as a shareholder, depositor and customer, which to some extent insulates the banking sector from external events.
Support measures
A QR75 billion stimulus and support package to the private sector, equivalent to around 12 per cent of nominal GDP, and a QR10 billion injection to boost the country’s capital market helped limit the impact of the coronavirus outbreak. Measures introduced in response to the outbreak included:
1. the central bank’s 0 per cent repo facility to support banking sector liquidity;
2. lending initiatives by Qatar Development Bank to help small and medium-sized enterprises (SMEs) with rents and salaries;
3. waivers of electricity and water bills; deferrals of taxes;
4. loan payments and an increase in concessional financing for SMEs.
The banks’ total income rose 4 per cent to QR43.9 billion in 2020 from QR42.1 billion in 2019. The increase was driven by a 9 per cent rise in net interest income that offset an 11 per cent decrease in non-interest income.
Income growth
Operating income grew at all eight banks. Growth in total income was supported by 7 per cent credit growth year-overyear. Interest income was supported by net interest margins that remained unchanged at 2.1 per cent in 2020 compared with 2019. Stable net interest margins reflected a decline in asset yields in the current lower interest rate environment, to 4.3 per cent from 5.4 per cent, that was fully offset by a decline in cost of funds to 2.4 per cent from 3.6 per cent.
“Lower interest rates were a large factor contributing to the lower asset yields (the difference between cost of funds and interest income) and cost of funds,” said Bhojnagarwala.
“Net interest margins could come under pressure in the coming months, though only to a limited extent given our expectation that liquidity pressure will ease and asset yields will stabilise,” he added.
We expect bottom-line profitability [of Qatari banks] to remain at the same level in 2021 in the context of slow economic activity, though it will remain relatively strong compared with regional and global peers.”
Nitish Bhojnagarwala | Vice President – Senior Credit Officer at Moody’s Investors Service
Non-interest income
Total non-interest income fell to QR8.5 billion in 2020 from QR9.6 billion in 2019. The fall reflected a decline in economic activity and a waiver of charges and fees in response to the pandemic that weighed on fees and commission income
Improved efficiency
Moody’s said Qatari banks improved their operating efficiency in 2020 through cost control measures such as reducing staff and travel expenses, which eased the pressure on their bottom-line profit.
Operating expenses fell 6 per cent to QR11.1 billion from QR11.7 billion a year earlier, while the cost to income ratio fell to 25 per cent from 28 per cent. All eight banks reported a lower cost to income ratio.