QFC financial market forum calls for developing local debt market to lessen reliance on non-resident deposits

Doha's banking industry's margins have performed better than the market expected and there was a need for increasing reliance on domestic liquidity (than on non-resident deposits) as the gap between the growth in assets and deposits have been widening since last few years, thus calling for developing local debt market, according to a panel discussion at the Qatar Financial Market Forum.
"There has always been more asset growth than deposits. The gap has been growing over the last five to six years. This gap (between the growth in assets/loans and deposits have to be plugged," Ayman Doukali, Head of Islamic and Structured Finance, Qatar Financial Centre, told the panel discussion 'Domestic Debt Capital Market in Qatar: Potential and Building Blocks’ at the forum, organised by the Qatar Financial Centre in association with Bloomberg.
He said Qatar banks' margins have performed better than the market expected despite all the challenges.


The panel discussion focused on the liquidity position of Qatari banks and its performance based on the dynamics of local and foreign currency funding situation, the challenges impacting funding environment, the role of a potential domestic debt capital market in improving the Qatari capital market and other aspects that affect Qatar’s banking sector.
Edmond Christou, Senior Research Analyst, Bloomberg Intelligence, said on the liquidity front, the long term funding issues have to be addressed as he suggested more reliance on domestic liquidity for the banking sector and less reliance on dollar funding.
Akber Khan, Senior Director, Al Rayan Investment, said the regional banks in the Gulf Co-operation Council have strong balance sheets.
Compared to peers in the developed markets, the strength of their balance sheet ratios are "extremely high" (for the regional lenders), he said.
Pravesh Malhotra, Head of Investments, The Commercial Bank, said "we are in a sweet spot as the local balance sheets are strong."
A concern for him is the US Federal Reserve's policy, specifically related to quantitative tightening, considering that local banks are reliant on external financing.
“I don’t see any imminent risk from liquidity perspective as there is plenty of liquidity and liquidly buffers in terms of HQLA (high quality liquid assets) holdings as by international standards, Qatar's sovereign debt qualify for HQLA,” he said.
However, the key concerns would be replacing non-resident deposits with domestic deposits and to what it extend it could be stretched, he said, highlighting that over the period of last seven to eight months, the banks have shed 13% of non-resident deposits.
“But there is a limited opportunity for the local banks to be able to continue with this momentum since structurally the local liquidity pool is shorter,” he said.
Regarding the ways to address this issue, he said it is important to focus on developing local liquidity pool by developing local debt market, which should also give opportunity to retail investors to internalise their savings.