Credit exposure still poses challenge for Qatari banks: Fitch Friday, 03 September 2010 03:57

DOHA: Although Qatari banks have remained relatively unaffected by the global financial crisis and regional downturn, their credit exposure during the lending boom continues to pose challenges for the sector, says Fitch Ratings in a special report released yesterday.

It warns that Qatari banks continue to face high credit risks on loans to domestic real estate and construction sectors which remain pressuring banks’ standalone risk profiles.

Due to Qatar’s booming economy and robust banking support measures, unlike regional peers, Qatari banks delivered strong profitability and displayed healthy asset quality, liquidity and capital indicators.

As a result, they also excelled by being the only banks in the region to avoid any Fitch-related rating downgrades last year.

However, these positive factors, Fitch believes that Qatari banks continue to face high credit risks on loans to domestic real estate and construction segments, the report said.

“Qatari banks’ non-performing loan (NPL) ratios are currently very low, and among the best in the region,” said Mahin Dissanayake, Associate Director, in Fitch’s Financial Institutions team in Dubai.

“However, Fitch warns that this could change due to the ongoing problems affecting the real estate and construction segments and the spill-over into the wider economy.”

“More evidence of potential NPLs can be seen in the high levels of renegotiated and past due loans which suggest that current low NPL ratios may understate reality” Dissanayake added.

Recent government support for key real estate developments is positive and the state’s ongoing investment drive could improve the credit environment, although Fitch believes that the private sector is likely to remain stressed for some time.

The agency views the banking sector’s liquidity as strong overall, boosted by the Qatari government’s purchase of bank assets (local equities and certain loans) in exchange for cash and government bonds in 2009. Banks are primarily customer deposit funded, although a general shortage of deposits in the system has led to fairly high loans/deposits ratios.

Unlike many banks in the region, Fitch believes Qatari banks have good access to the international capital markets due to positive investor sentiment on Qatar, reflecting the country’s strong macro-economy and the success of its banking support measures.

Capitalization has also been strengthened by direct capital injections by the Qatari government, which saw the government take 10% equity stakes in all the country’s banks apart from Qatar National Bank (QNB), which is already 50 percent government-owned).

Fitch believes that the outlook for Qatari banks is generally encouraging. Increased project activity is likely to be the main catalyst for future asset and revenue growth and banks should remain profitable in FY10. However, likely asset quality deterioration could mean that profit growth expectations are moderate.

Fitch has maintained its Stable Outlook for the sector, reflecting government support and Qatar’s strong economic fundamentals.

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