Development of non-oil industries and improving infrastructure network will be a significant driver of loan demand in Qatar, says BMI in a report.
According to the Fitch Group company, the development of non-oil industries and improvement of the infrastructure network are part of government’s ambitious economic transformation programmes in Qatar.
The FIFA World Cup in 2022, which Qatar is hosting, is seen as a catalyst for economic diversification and will support economic activity; BMI said and noted the country is set to witness credit growth in several sectors including construction, tourism and retail.
BMI said the GCC commercial banks will benefit from the improving macroeconomic environment across the region in 2018 and beyond, which will have a positive impact on credit demand.
Slowly rising interest rates and governments' provision of funding will support deposit growth, ensuring broad sector stability.
Gulf Cooperation Council commercial banks will benefit from an improving operating environment in 2018, largely owing to the economic recovery underway across the region.
Rising oil prices will enable governments to move away from austerity, which support consumer and business confidence and have a positive impact on credit demand.
Meanwhile, government efforts to support domestic banks through capital injections, combined with rising interest rates, will support deposit growth, ensuring sufficient funding to grow banks’ loan books without hampering overall sector stability.
“That said, despite tailwinds from recovering economic activity, we caution that growth in the GCC banking sector will remain modest compared with the pre-oil slump boom years,” BMI said.
It noted that all the GCC countries look set for an uptick in economic activity this year, which BMI believes will be a boon for the banking sectors of these countries.
“We forecast average weighted real GDP growth of 2.3% in 2018 and 2.7% in 2019 across the block, after bottoming at an estimated 0.4% in 2017. The recovery will be largely driven by further gains in oil prices,” BMI said.
BMI’s analysts have forecast Brent to average $65 a barrel in 2018 and $69 in 2019, up from $54.7 in 2017, which will support confidence in the economy, and enable governments to move away from austerity.
The improving consumer and business confidence will translate into increased demand for credit in 2018 and beyond.
As confidence rises, businesses will resume their expansion plans, while consumer demand for credit will also increase, supporting loan growth, BMI said.
Asset growth, the report said, will be supported by greater lending to the public sector.
Following the slump in oil prices since H2,2014, governments across the region increasingly boosted domestic debt issuances to finance fiscal shortfalls.
Commercial banks, looking to move into assets perceived as less risky, substantially increased their exposure to the government debt.
Indeed, bonds accounted for only 2.5% of assets held by commercial banks in Saudi Arabia in 2014, but this proportion reached 7.9% of the total in 2016, as claims on the public sector expanded by 82% in 2016.
While public sector borrowing slowed across the bloc in 2017, as gains in oil prices supported fiscal revenues and as government sought to limit liquidity pressures in the domestic banking sectors, governments will remain a key source of asset growth for commercial banks, as we still forecast the bloc to stay in deficits (on an aggregate level) over the next five years.
“However, we caution that the growing importance of public sector borrowing in banks ’ asset portfolios will be negative for overall profitability, as debt tends to be safer, and therefore associated with lower interest rates,” BMI said.
The FIFA World Cup in 2022, which Qatar is hosting, is seen as a catalyst for economic diversification and will support economic activity; BMI said and noted the country is set to witness credit growth in several sectors including construction, tourism and retail.
BMI said the GCC commercial banks will benefit from the improving macroeconomic environment across the region in 2018 and beyond, which will have a positive impact on credit demand.
Slowly rising interest rates and governments' provision of funding will support deposit growth, ensuring broad sector stability.
Gulf Cooperation Council commercial banks will benefit from an improving operating environment in 2018, largely owing to the economic recovery underway across the region.
Rising oil prices will enable governments to move away from austerity, which support consumer and business confidence and have a positive impact on credit demand.
Meanwhile, government efforts to support domestic banks through capital injections, combined with rising interest rates, will support deposit growth, ensuring sufficient funding to grow banks’ loan books without hampering overall sector stability.
“That said, despite tailwinds from recovering economic activity, we caution that growth in the GCC banking sector will remain modest compared with the pre-oil slump boom years,” BMI said.
It noted that all the GCC countries look set for an uptick in economic activity this year, which BMI believes will be a boon for the banking sectors of these countries.
“We forecast average weighted real GDP growth of 2.3% in 2018 and 2.7% in 2019 across the block, after bottoming at an estimated 0.4% in 2017. The recovery will be largely driven by further gains in oil prices,” BMI said.
BMI’s analysts have forecast Brent to average $65 a barrel in 2018 and $69 in 2019, up from $54.7 in 2017, which will support confidence in the economy, and enable governments to move away from austerity.
The improving consumer and business confidence will translate into increased demand for credit in 2018 and beyond.
As confidence rises, businesses will resume their expansion plans, while consumer demand for credit will also increase, supporting loan growth, BMI said.
Asset growth, the report said, will be supported by greater lending to the public sector.
Following the slump in oil prices since H2,2014, governments across the region increasingly boosted domestic debt issuances to finance fiscal shortfalls.
Commercial banks, looking to move into assets perceived as less risky, substantially increased their exposure to the government debt.
Indeed, bonds accounted for only 2.5% of assets held by commercial banks in Saudi Arabia in 2014, but this proportion reached 7.9% of the total in 2016, as claims on the public sector expanded by 82% in 2016.
While public sector borrowing slowed across the bloc in 2017, as gains in oil prices supported fiscal revenues and as government sought to limit liquidity pressures in the domestic banking sectors, governments will remain a key source of asset growth for commercial banks, as we still forecast the bloc to stay in deficits (on an aggregate level) over the next five years.
“However, we caution that the growing importance of public sector borrowing in banks ’ asset portfolios will be negative for overall profitability, as debt tends to be safer, and therefore associated with lower interest rates,” BMI said.
