Jan 20 2013
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Qatari bank asset quality set to improve
Qatar's rapid loan growth has been well above the average in the region. It has been more or less matched by deposit growth, to a large extent public sector, but loans/deposits ratios are gradually creeping up.
A further downside to rapid growth is the concentration of risk that may increase sharply-although risk is mitigated by government backing for the largest corporates and the major infrastructure projects in Qatar.
While this may prove an attractive opportunity for existing Islamic banks, there is little sign to date of any negative impact on the conventional banks.
Some funding pressure is likely for banks, apart from Qatar National Bank (QNB), that already have loans/customer deposits ratios have 100 percent.
Government spending should feed through into increased customer deposits, but rapid loan growth could exceed deposit growth in the future. Liquidity is currently reasonable, reflecting large holdings of liquid assets including Qatari government securities, but could come under strain due to lengthening loan maturities.
However, in light of past liquidity support for the banks, support from the authorities is likely to remains strong. Banks which have issued in the international debt markets have been able to do so at relatively modest pricing. Capital ratios remain sound, but could be eroded as loan books expand.
According to the Fitch Outlook, banks in the Gulf region are set to see a gradual improvement in profitability on rising fee income and lower impairment charges this year.. The ratings agency said the outlook for most banks in the GCC/Middle East region was stable, largely driven by the probability of sovereign support.
Fitch said it expects loan growth to increase in 2013, as confidence improves and infrastructure projects come on stream, stimulating the local economies. But the agency also warned that much also depends on the global economy and regional unrest.
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