World Cup spending goal to revive Qatar bank loans

Customers operate automated teller machines (ATM) inside a QNB branch in Doha (file). QNB, the Middle East’s largest lender, raised projected loan growth to as much as 17% for the second half, from an earlier forecast of 13%, according to three people who listened to a July 15 conference call with analysts.

Bloomberg/Doha

 Qatari bank lending may rebound from the slowest in almost two years as the country’s new leadership invests $200bn in infrastructure before the 2022 soccer World Cup.

QNB, the Middle East’s largest lender, raised projected loan growth to as much as 17% for the second half, from an earlier forecast of 13%, according to three people who listened to a July 15 conference call with analysts. Thirty eight banks in the Gulf Co-operation Council that reported first-quarter total loans showed an average annual rise of 19%, according to Bloomberg data.

HH the Emir Sheikh Tamim bin Hamad al-Thani, who took over last month, plans to spend on roads, stadiums and a new city before the world’s most watched sporting event. State-owned Qatar Rail Co awarded $8bn in contracts June 5 for the first phase of a $35bn metro and rail system.

“What’s clear is the outlook for credit growth in the next 24 months should be extremely strong as a number of very significant projects reach launch mode and infrastructure build-out intensifies,” Akber Khan, director of asset management at Al Rayan Investment in Doha, said by telephone on Monday.

The country’s credit growth slowed to 18% in June, from 36% a year earlier, marking the slowest pace since September 2011, according to central bank data.

The yield on Qatar’s 5.75% bonds maturing in January 2042 fell 21.9 basis points this month to 5% yesterday. The average yield for government bonds of Middle East countries fell 51 basis points this month to 4.966% on July 19, according to the HSBC/Nasdaq Dubai Middle East Conventional Sovereign US Dollar Bond Index.

Qatar was awarded the World Cup tournament in 2010 and will become the first Middle Eastern country to host the event. The country proposed to more than double hotel and apartments for visitors and build nine new stadiums that would be cooled using solar-powered air conditioners.

Qatari banks have experienced narrowing margins on lending over the past two years as economic expansion shrank by more than half and loan growth slowed. The world’s biggest liquefied natural gas producer reduced energy investment after completing the last of 14 gas liquefaction plants in 2011.

Qatari banks’ average net interest margins, a measure of lending profitability, shrank 88 basis points in the 12 months ended the first quarter to 3.23% from the year-earlier period, according to data compiled by Bloomberg. The average margin for banks in the six nation GCC fell 25 basis points to 3.62%.

Spending on capital projects fell short of what was budgeted last year, the country’s General Secretariat for Development Planning said in a June 27 report. The first tenders for the rail and metro system were originally scheduled to be awarded in 2011.

Increases in capital spending needed “to keep Qatar’s capital projects on track” will cut the fiscal surplus to 4.7% of gross domestic product next year from 8.1% this year, the development planning office said in its report.

“You will see a pickup in terms of lending activity but we don’t expect to see that happen before the fourth quarter,” Bobby Sarkar, head of research at QNB Financial Services, said in a telephone interview. “Metro projects were announced and given out ahead of what people were expecting. The contracts were awarded by June and these are one of the first projects that will be doled out in the run-up to the World Cup.”

QNB, bigger than all other domestic lenders combined, said this month second-quarter net income rose 23% to 2.6bn riyals from the year-earlier period. Masraf Al Rayan, the country’s biggest Shariah-compliant bank by market value, posted a 13% rise in net income for the quarter to 421mn riyals, exceeding estimates.

Not all analysts predict an increase in lending. Jaap Meijer, director of equity research at Dubai-based Arqaam Capital Ltd, said he expects lending growth to drop to 15% this fiscal year.

“We remain cautious on Qatar on the back of continued public lending slowdown,” he said in an e-mailed note.

The holder of the world’s third-largest gas reserves and the richest country in the world per capita, Qatar’s economy slowed to 6.2% last year from 17% in 2010, according to a report in May by QNB. It came as gas exports levelled off after the country completed the installation of 77mn tonnes of annual liquefied gas capacity. Oil and gas output will contract next year, cutting GDP growth to 4.5% from 5.3% this year, according to the development planning office.

“The Qatari banking system has been suffering from contracting margins for the last 18 months, however we are getting to the stage where there isn’t that much more room for further declines,” Al Rayan Investment’s Khan said. “The outlook should be brighter for the banking industry.”