DOHA: The banking sector in Qatar saw positive results in 2017, with an average 5.0 percent growth in net profit, and 8.1 percent growth in total assets – the highest in the region.
In 2017, profitability for listed banks increased by 5.0 percent on an average from the previous year, mainly as a result of higher net interest income, which increased by 3.8 percent, and a further reduction in costs, despite a higher impairment charge on loans, KPMG’s latest version of the ‘GCC listed banks results’ report showed.
The report , titled ‘Shifting Horizons’, that analyse the published results of listed banks across the region for the year ended 31 December 2017, noted listed banks in Qatar continue to have some of the lowest CIRS in the region.
Qatar recorded highest asset growth rate in the region, posting an 8.1 percent growth in total assets from the previous year. The growth is predominantly attributed to the increase in financing asset balances and higher investment securities. The significant increase in financing asset balances was primarily driven by QNB, which contributed 70 percent of the growth, mainly as a result of increased government and related lending.
Speaking about the report, Omar Mahmood (pictured), head of Financial Services for KPMG in the Middle East & South Asia, and partner at KPMG in Qatar, commented, “Overall it has been a strong year for listed banks in Qatar. While profitability, assets and capital have all increased from the comparative year, banks in Qatar have also managed to reduce costs by 1.9 percent on average, resulting in a sector cost-to-income ratio of less than 30 percent, which is the lowest in the region. These positive report findings are particularly impressive, given the unique year for Qatar, both politically and economically, and continue to reflect the resilience of Qatar’s banking sector.”
“Despite this success banks are still very well aware of the challenges that remain. Impairment charges, non-performing ratios and funding costs have all increased, while liquidity continues to be a key focus area. Banks are therefore reshaping strategies, targeting higher quality domestic assets and looking at diversified funding sources,” Mahmood said.
Qatar National Bank (QNB) remains the largest bank in the region, by assets and profitability, with a market share of 56.3 percent of total listed Qatar banking assets, demonstrating their dominant position in the sector across the region.
Capital adequacy ratios In Qatar are also at higher levels in comparison to 2016, reflecting the specific capital raising activities undertaken by banks during the year to help support future growth.
Looking to the future, Mahmood added that, “the focus on innovation and efficiency will continue as banks in Qatar look to differentiate themselves in a competitive market, given the funding cost
pressures being faced, as well as the increasing regulatory requirements, such as Basel III and IFRS 9. We expect there to be continued control around the cost side of the business to ensure profitable growth remains and cost-to-income ratios are maintained at low levels.”
Additional findings in the report note that with the 2022 FIFA World Cup approaching, Qatari banks are likely to continue focusing on the local market, as opposed to looking overseas for growth. Furthermore, the report findings suggest that the regulator will continue to implement the Basel III capital requirements, with additional domestic systemically important banks and counter cyclical buffer requirements to be gradually phased in, resulting in higher capital adequacy requirements for banks to meet.
On the outlook for the regional banks, KPMG said : “With the introduction of VAT expected across the GCC throughout 2018/2019, tax will continue to be on the board agenda. Banks will need to be proactive and assess the potential impact of VAT on their businesses….”
Given the margin pressures, banks have experienced across the region in 2017, KPMG expects cost and operational efficiencies to remain high on the management agenda.
