QIA purchase of 10% in bank credit positive, says Moody’s

By Santhosh V Perumal/Business Reporter

"The fresh equity injected by the government’s investment arm will strengthen bank capitalisation and also enable banks to fund higher loan growth in anticipation of the 2022 World Cup,” Moody’s said in its comment.

The 10% stake will be acquired through the issue of new shares and is "credit positive for the local banks”, it said, adding Commercialbank and Doha Bank, which respectively are the second and third largest banks in the country, would benefit from the new capital increase.

The government’s announcement of an additional 10% stake in the banks is to support the sector and promote credit growth, which is expected to gradually resume the pre-crisis levels of 25%-30% in the medium term, according to the agency.

"As the country prepares for the 2022 World Cup, we expect government spending for infrastructure development to remain high and project financing activity on behalf of the banks to grow further,” Moody’s said, adding hence "securing capital and longer-term funding is the key in order to finance these longer-term projects and address any maturity mismatches on banks’ balance sheets.”

The transaction, which is to be completed in first-quarter 2011, follows the initial capital investment by the QIA in six locally listed banks. The initial investment was QR2.6bn ($714mn) for 5% stake in the banks in January 2009 and another QR2.7bn ($741mn) for an additional 5% in January 2010.

Overall, Qatari banks have comfortable capital positions, which is one of the main factors supporting their ratings. Official systemic data shows that by end-November 2010, the total capital adequacy ratio of Qatari commercial banks stood at a strong 16.32%.

"We estimate that following the new capital injection by the QIA, the growth in total regulatory capital of the system will range between 50 and 150 basis points, depending on the issue price and the actual amount of shares issued and subscribed to by the government,” Moody’s said.

Since the beginning of the global financial crisis in 2008, the Qatari government has been highly supportive of the banking system and took a number of measures to maintain its financial stability, Moody’s said.

These measures included the direct capital injection in the banks, the purchase of the banks’ listed equity shares on the Qatar Exchange and the acquisition of part of the banks’ real estate investment portfolio.

"We estimate that altogether, these measures cost around 7% of the country’s GDP,” the rating agency said.