The stable outlook factored in the banks’ limited asset-quality pressures and healthy capitalisation levels, a stable deposit base and significant liquidity buffers and strong earnings potential, it said in a new ‘Banking System Outlook’ published yesterday.
These supportive factors are however counter-balanced by high levels of concentrations on both sides of the balance sheet, banks’ dependence on the domestic economy, which is undiversified and heavily reliant on the oil and gas sector; and credit risks relating to exposures to the construction and real-estate sector, it observed.
Estimating that Qatar’s real GDP (gross domestic product) will expand 6% in 2012, driven by high oil prices, strong liquefied natural gas export volumes and accelerated public spending, which will stimulate the non-oil economy, Moody’s said, “this, in turn, would support banks’ asset quality, drive credit growth — likely to be between 20%-25% during 2012 — and increase bank revenues.”
The rating agency said non-performing loan (NPL) levels would likely remain “relatively stable” at around 2% of gross loans, supported by Qatar’s strong macro environment and improvements in the credit quality of banks’ consumer portfolios.
Following three rounds of ‘pre-emptive’ capital injections by the Qatari government into the seven listed domestic banks between 2009 and 2011, culminating in a Tier-1 ratio of 20% as of December 2011, the sector’s solid capital buffers provided high loss-absorption capacity, it said.
“Core liquid assets — estimated at 34% of total assets in December 2011 — demonstrate that liquidity buffers are sound within the system, which remains predominantly deposit-funded”, Moody’s said.
This would continue to benefit from the strong ties with the Qatari government, which contributed around 23% of sector deposits as of December 2011, forming a stable (though concentrated) funding source, it said.
However, the banks have increased their dependence on wholesale funding — primarily short-term foreign inter-bank balances — which account for about 33% of total funding as of December 2011, it added.
Return on average assets stood at 2.7% in 2011, one of the highest ratios amongst regional peers, it said, adding Qatari banks’ interest-rate margins is expected to decline in 2012 due to the increased funding costs and the introduction of interest-rate caps on their retail portfolios.
However, Moody’s expects the system’s overall profitability to remain at comfortable levels, supported by higher lending volumes, low provisioning requirements and banks’ low cost bases.
Cautioning that the supportive outlook factors are counterbalanced by the banks’ high dependence on government-related business, which creates concentrations on both sides of the balance sheet; it said “uncertainties regarding regional political developments also pose a tail risk to the benign operating environment.”
