Despite the weaker macroeconomic environment, the demand for loans will remain strong in Qatar, driven by the government’s financing need in preparation for the 2022 FIFA World Cup, a new report has shown. 
According to BMI Research, Qatar’s commercial banks will “remain resilient” to the low-price environment and will outperform their Gulf Cooperation Council peers over the coming years. 
Government-led investment in preparation for the World Cup and to diversify the economy away from hydrocarbons will continue to support loans demand, allowing commercial banks to grow their asset bases. 
“We forecast assets at commercial banks to expand by an average of 12.5% y-o-y over 2017-2020, a slowdown from 14.3% y-o-y over 2011-2015 but still offering considerable opportunities,” said BMI Research, a Fitch Group company. 
However, the report said the growing importance of the public sector in total demand for credit, combined with the ongoing liquidity squeeze and the low interest rate environment, will continue to weigh on profitability.
Loan growth has slowed in Qatar amid the slump in oil prices since the second half of 2014. Despite the diversification efforts, the Qatari government is still heavily reliant on hydrocarbons; hence, the fall in hydrocarbon prices has prompted the government to rationalise spending, weighing on consumer and business sentiment, the BMI report said. 
Credit growth averaged 12.1% y-o-y in general trade in the first 10 months of 2016, 13.1% in industry and 6.2% in consumption - a sharp slowdown compared with 28.7%, 22.6% and 23.4%, respectively, in 2015. 
Meanwhile, the real estate segment has driven credit growth throughout 2016 as developers have stepped up investment in the sector in preparation for the World Cup. However, it is now showing signs of weakness, with growth slowing from 34.0% y-o-y in January 2016 to 9.2% in October.
BMI said, “We believe that credit growth has now bottomed, and will experience a modest uptick from 2017 onwards. With our expectations for oil prices to average $55 per barrel in 2017, up from $45.5 in 2016, we expect credit growth in consumption and general trade to pick up.” 
In addition, public investment in preparation for the 2022 World Cup will continue to “provide a lifeline” for Qatari commercial banks. Net claims on the public sector expanded by an average of 43.2% y-o-y in the first 10 months of 2016, pointing to rising borrowing needs to finance public investment. 
On the other hand, demand for credit from semi-government institutions has sharply declined, reflecting cuts on secondary projects and the government’s efforts to delegate some services to the private sector, BMI noted.
Meanwhile, deposits will grow at a slower pace, posing some moderate but contained risks to sector stability. Deposits at Qatar’s commercial banks expanded by a lacklustre 7.4% y-o-y in the first 10 months of 2016, with only non-resident deposits “picking up the slack,” BMI said. “We expect deposit growth to pick up from 2017 as the macroeconomic backdrop improves, but it will continue to underperform total asset growth. This will result in a steady increase in the loan-to-deposit ratio from a current level of 1.19, having already made substantial gains since early 2014.”
BMI said, “Qatar’s high loan-to-deposit ratio compared to the rest of the Middle East will raise refinancing risks, but we do not believe that overall sector stability is at threat, given banks’ success in raising money from abroad. Weak deposit growth is likely to force the government to delay the implementation of a 100% loan-to-deposit ratio requirement by the Qatar Central Bank to 2018 or beyond. A strict implementation would result in a credit squeeze and significantly raise borrowing costs.”


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