Doha So Good


Qatar's banking sector remains a beacon of national strength, while numerous local players are looking abroad to diversify their risk both regionally and globally.


The weight of the banking sector in the economy remains impressive and on an upward trajectory, where the ratio of total banking assets to GDP soared from 97% in 2008 to 127% in 1H2013. Qatari banks will be swelling their coffers on the dime of mega-infrastructure projects for the next decade; this in addition to the nation’s fertile hydrocarbon fields. The countdown to the 2022 FIFA World Cup coincides with infrastructure projects valued at $150 billion.


Local banks are the major force of Qatar’s banking universe, and the country’s 18 licensed institutions comprise the state-owned Qatar Development Bank (QDB), six commercial operations, seven foreign players, and four Islamic operations. The sector’s contribution to the broader economy cannot be faulted, as its ratio of total assets to GDP climbed from close to 100% in 2008 to a solid 127% by 1H2013, according to Qatar National Bank (QNB). This ranked the sector as the third largest in the GCC.


Many banking institutions in the GCC that are not reliant on foreign capital were unscathed by the credit crunch of 2008-2009. And those Qatari banks that were received government cushioning, as unsightly real estate loans and equity portfolios were bought up. Indeed, as of the end of 2012, non-performing loans (NPLs) accounted for just 1.7% of total loans. And although Basel III norms stipulate a minimum Capital Adequacy Ratio (CAR) of 12%, Qatari banks have been ahead of the game at 18.9% by the end of December 2012, due to their robust fiscal position, but also, again, thanks to government support.

The Qatar Central Bank (QCB) in 2013 decreased Qatari banks’ domestic and overseas financial investments from 30% to 25% of capital and reserves, curbing investments beyond the country to 15% of total securities. The logic behind this was to increase local bank investment in the government debt market, thus maintaining the health of the local financial sector in light of massive infrastructure projects.


Local Qatari banks have continued to leverage their financial girth in promising foreign destinations. Such investments also diversify risk and mitigate the reality of Qatar’s tiny, albeit wealthy, population. Therefore, populous emerging markets like Turkey (80.7 million) and Egypt (84.5 million) have been tempting propositions. The overseas assets of publicly listed banks increased by almost 10% from 2008-2011. As has been observed elsewhere in the GCC, Qatari players have been dipping their toes in Asia to tap the lively trade flow between the GCC and the Asia-Pacific region. QNB, a force in 26 countries, aims for international business to generate roughly 40% of its profit and 45% of its total assets by 2017. In 2013, it purchased National Société Générale Bank (NSGB) in Egypt and has also extended its footprint by opening representational offices in India and China. The semi state-owned bank posted a year-on-year provisions rise of 90% following the Egyptian foray. The Commercial Bank of Qatar, with 10.2% of total banking sector assets, ranking second among Qatar’s top five, holds a 70.84% stake in Alternatifbank (ABank) in Turkey, with an estimated annual return on equity (ROE) of around 15%. Doha Bank, the fifth largest local player by assets at 6.8% as of June 2013, boasts representative offices and branches in an array of destinations that span Kuwait, Dubai, and Abu Dhabi, as well as Japan, China, Singapore, South Korea, Australia, Turkey, the UK, and Canada. Further target markets beyond the GCC include Hong Kong, and the vast potential market of India. The bank, which posted a ROAE of 18.4% as of 3Q2013, was voted “Bank of the Year 2013-Qatar” by The Banker.


QNB suggests that the continued bullishness of Qatari banks reflects confidence in real GDP, rising by 6.8% in 2014. Meanwhile, Moody’s cites infrastructure commitments as supportive of lending growth, while low provisioning requirements and the sector’s low cost bases will underpin overall profitability. Net interest margins are forecast to slip though, due to the regulator’s interest-rate caps on retail lending; this combined with the fact that project finance generates slender yields. According to Qatar Today, the total assets of domestic banks had surged from roughly QAR100 billion in 2002 to around QR877.25 billion by 1H2013. Domestic assets continue to drive growth, where credit accounts for 71% and investment 21%. And at 72%, conventional banks retain the lion’s share when it comes to total sector assets—these grew by 18.4% in 1H2013. The sector overall posted asset growth of 23.2% year on year in 2013. And QNB led the field in year-on-year terms for 2013 on record asset growth of 30.4%. Meanwhile, on the deposits front, QNB forecasts average annual deposit growth of 20.0% over 2013-14. The net profit of Qatari banks increased 8.9% to $2.4 billion in the first half of 2013 in year-on-year terms.

The QCB has kept its repo rate and overnight lending facility at 4.5% since August of 2011. QCB figures released for the first half of 2013 show that private sector bank deposits soared to over $75.5 billion in 1H2013. Importantly, too, the robust investment-grade rating that Qatari banks enjoy affords high credit ratings, in turn enabling them to source competitive funding options in the international bond markets (see table).


A concentrated landscape means that the big five banks currently represent almost 80% of total assets, while foreign banks hold onto a 5% stake. QNB is the kingpin of the local landscape on total assets of QAR437 billion as of 9M2013, holding around 45% of the nation’s total banking assets. For 2013, net profit came in at QAR9.5 billion, up 13.7% year on year. In the fall of 2013, QNB raised $1.5 billion to spend on its operations from a much-oversubscribed issue under its Euro Medium Term Note (EMTN) program in the international capital markets. Following on from QNB in descending order in terms of share of total banking assets are Commercial Bank with 10.2%, Qatar Islamic Bank with 8.2%, Masraf Al Rayan at 7.4%, and Doha Bank with 6.8%.


The international sukuk market registered at $131 billion in 2012, and the market remains on its ascendency. In Qatar, the QCB has prohibited conventional banks from opening Islamic windows, which the local banks have been providing since 2005. The players to watch are QNB Al Islami, Al Safa by Commercial Bank, Doha Islamic, Ahli Islamic, and Yusr by International Bank of Qatar. According to Qatar Islamic Bank Group CEO Bassel Jamal, “Qatari sukuk issuances in 2012 reached 12% of the overall global sukuk issuances,” accounting for $5.5 billion. Qatar Islamic Bank, ranking third by assets with 8.2% of total Qatari banking assets, caters to corporate, retail, and investment banking segments with its nationwide network of 32 branches. Qatar’s rating upgrade to emerging market status in 2013 merely underlined in thick marker the fundamental strength of its financial sector.

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