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Full coffers encourage bold strategies

April 2012
At a time when bankers in Britain are being praised for achieving smaller-than-expected losses, Qatari banks are making the kind of percentage gains that their European counterparts can only dream of. Confidence is high and the outlook is bright.

Year-end 2011 saw International Bank of Qatar (IBQ) post a 25% rise in net profits to $157.4 million (QR573 million), compared to $125.8m (QR458m) for 2010. Across the board, the picture is remarkably similar; Commercial Bank of Qatar, which is the second-biggest lender in the Gulf, posted a 22% rise over the same period, while Qatar National Bank ( QNB ) saw a 32% rise in profit last year.

More generally, the total assets of Qatar's commercial banks grew by 22.3% to $190.6bn (QR694bn) in 2011 from 2010. Credit facilities to customers rose by 28.2% to $103.5bn (QR377bn) in the same period, and customer deposits increased by more than 18.5% to $100bn.

Qatar is proof that global economic downturns are not all doom and gloom, especially for those who can weather the storm and seek out opportunities. While European banks are pulling out of emerging markets to meet tightening capital requirements at home, the strength of the Qatari economy is encouraging banks to expand their overseas portfolios.

In recent years, QNB has established presence in 24 countries including France, Kuwait, the UK and Singapore. Now, QNB - Qatar's biggest lender - is eyeing Turkish bank DenizBank, in a proposed takeover which is expected to be worth up to $6bn (QR22bn), and one which could go through by the end of this year. By mid-February, potential competition for the bid had all but fallen away, with HSBC Holdings and OAO Sberbank withdrawing. Few banks in Europe are in a position to make such acquisitions.

In an effort to expand its presence in Africa, particularly in the wake of the ongoing sovereign debt crisis in Europe, QNB has also signed a partnership agreement for the Morocco-based Union Marocaine des Banques, with plans to acquire a majority.

And identifying the hitherto largely untapped potential for sharia-compliant banking in Asia, Qatar Islamic Bank ( QIB ) is looking to penetrate the Indonesian market with a takeover. With the local Islamic banking segment growing at a yearly average of 33% during the last five years, according to Bank Indonesia, QIB is reported to be considering a number of possible acquisitions.

In another marked contrast with the nations of Europe, Qatari state finances are also in good shape. A number of states are facing the ongoing threat of credit-rating downgrades and defaulting on their debts, yet the Qatari state budget turned a huge surplus of 25.6% in the second quarter of the 2011/12 fiscal year, according to preliminary estimates published by Qatar Central Bank.

The rise in revenue, which dramatically jumped 61% to nearly $21.4bn (QR78bn) in July-September over the previous year, is largely the result of rising oil prices and expanded gas production. Moreover, Qatar is widely expected to continue posting surpluses for the next five years, amounting to around $75bn (QR273bn), which will shield the economy from the impact of the European financial crisis.

This will go some way towards allaying fears that, with Qatar's economy showing signs of slowing and GDP growth expected to fall to 5.1% for 2012 (from around 19% in 2011), Qatar won't be able to finance the ambitious range of infrastructure developments in the pipeline. A significant number of these projects form part of the country's World Cup 2022 preparations, estimated to amount to $150bn (QR546bn), including some $50bn (QR182bn) on transport infrastructure, which will take up around 40% of the government's budget between now and 2016.

The news of the state budget surplus is especially welcome given that the previous three years had seen the government overspend. But with oil now averaging well over $100 per barrel, the 2011/12 state budget's forecast - which was formulated on a price per barrel of $55 - looks conservative.

Although lending for projects in Qatar has traditionally been largely taken on by the private sector, the next decade will see increased funding from the public purse. Of course, with Qatar's banks in such a strong position, they will be ready to take up the inevitable opportunities when the money filters down to the private sector.

© Qatar Today 2012

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