Qatar, UAE banks ‘to give impetus’ to 2013 debt issue

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Qatar, UAE banks ‘to give impetus’ to 2013 debt issue
2:37 AM
5
March
2013

Finding that banks in Qatar raised $4.5bn in bonds and sukuk last year, Standard & Poor’s said the country continues to display very strong domestic growth that is fostering the increase in debt issuance

 

Banks in Qatar, along with those in the UAE, will provide the impetus for debt issue this year in view of high macroeconomic and credit growth as well as low interest rates, according to global credit rating agency Standard and Poor’s (S&P).

“We expect most of the impetus to come from banks in the UAE, the largest issuers in 2012, and Qatar, where issuance has been steadily increasing,” S&P said in its latest report.

Finding that banks in Qatar raised $4.5bn in bonds and sukuk last year, of which QNB issued $2bn, followed by Qatar Islamic Bank ($750mn) and International Islamic ($700mn), Commercialbank and Doha Bank $500mn each in five-year notes; it said the country continues to display very strong domestic growth that is fostering the increase in issuances.

Highlighting that between the end of 2011 and November 2012, domestic credit rose by 24.7% on the back of 24.2% growth in public-sector lending, which now accounts for 46% of total domestic credit, S&P said: We expect credit growth in Qatar to stay above 20% in 2013, pushing up the demand for funding by Qatari banks and, consequently, the level of debt capital market issuances.”

Additionally, Islamic banking in Qatar is expanding rapidly, which is largely due to the efforts of government and its related entities, key sponsors of the country’s Islamic banking market, it said.

As of November 30, 2012, Qatari Islamic banks’ aggregate asset base accounted for almost one-quarter of the domestic banking system, and “we expect this share to increase markedly over the next few years”, the agency said.

Although Masraf Al Rayan and Barwa Bank have not yet sought funding in the debt capital markets, “we believe they may do so” in time, in view of their balance sheet growth, it said, adding “given the generally positive growth prospects for the sector, we believe Qatari banks will become important sukuk issuers in the Gulf region over the next two years.”

As the Gulf banks look to diversify their funding base, sukuk (Islamic debt) is becoming more important in the GCC’s fixed-income market, representing almost half of the regional banks’ issuance in 2011 and 2012, it said.

“We noted a sharp rebound in Gulf banks’ activity in debt capital markets in 2012 as they took the opportunity to issue long-term debt at healthy prices under the favourable market conditions,” said S&P credit analyst Timucin Engin said.

Given the interest from institutional investors, the banks’ rapid growth, and the supportive environment for issuing long-term debt instruments at low cost, he said: “We think Gulf banks will have another busy issuance year.”

Finding that sukuk is becoming a key component of Gulf banks’ funding bases with about 50% of banks’ debt issued in 2011 and 45% in 2012 was in the form of such instrument, he said last year, banks issued $6.7bn of sukuk, representing year-over-year growth of 136%.

More important, conventional banks are now increasingly participating in the sukuk market as a means of diversifying their funding bases with longer-term instruments, Engin said, adding the demand for Shariah-compliant products is rising, both regionally and internationally.

In 2012, investors continued to place additional liquidity in the bond markets in search of higher yields amid generally low interest rates. This resulted in a visible tightening of yields and strong investment returns in many fixed-income markets globally.

“For banks in the GCC, this translated into significantly lower costs for bonds, and for sukuk, a major sub-segment of the GCC debt market,” it said.

The Gulf banks are benefiting from investors’ increased appetites for long-term debt in regional and global debt capital markets and are doing so at attractive prices, S&P said, adding the bulk of the issuances were in the form of five-year bonds and sukuk, but certain banks also issued notes with longer terms.

The dollar-weighted average tenor of debt issued in 2012 exceeded five years, it noted.

 



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