Growth of Shariah-compliant banks in Qatar is poised to outpace that of the UAE lenders as borrowing rises amid $200bn in government spending for the 2022 soccer World Cup.
Qatar’s four Islamic lenders will almost double their asset base to $100bn by 2017, Standard & Poor’s has said in a report. The assets of the largest Shariah-compliant bank in the country, Qatar Islamic Bank, last year grew five times faster than those of the biggest one in the UAE, Dubai Islamic Bank.
Spending for the world’s most-watched sporting event will spur lending for roads, stadiums and hotels. Bond sales by Qatari Islamic banks, only two of which have sold sukuk, also stand to benefit from the implementation of new global capital rules, S&P said.
“Qatari banks in general clearly have substantial scope to grow their asset base given the sheer magnitude of projects and infrastructure development going on in Doha at present,” said Chavan Bhogaita, head of markets strategy at the National Bank of Abu Dhabi.
The project pipeline in the UAE is also flowing, “albeit not at the same aggressive pace,” he added.
QIB’s Islamic bonds due in October 2017 yielded 2.74% by afternoon in Doha, according to data compiled by Bloomberg. DIB’s sukuk maturing in May the same year has a yield of 3.34%.
Both banks are rated A by Fitch Ratings, the sixth-highest investment grade. That compares with a yield of 3.32% for the HSBC/Nasdaq Dubai GCC Financial Services US Dollar Sukuk Index.
Qatar now has one of the fastest-growing Islamic banking industries in the world because of the surge in demand for local credit, S&P said.
“Unlike the UAE, conventional banks in Qatar aren’t allowed to offer Islamic products, which allows the Shariah-compliant banks to completely capture the Islamic banking market,” said Chiradeep Ghosh, a Bahrain-based analyst at Securities and Investment Co.
“We expect to see stronger borrowing appetite from corporations in Qatar compared to the UAE, supported by the roll-out of Qatari government projects.”
Qatar’s economy will grow 5.2% next year, the fastest in the GCC, according to the median of 17 estimates compiled by Bloomberg. Economic growth will reach 3.4% in the UAE and 4.2% in Saudi Arabia.
Still, total loans at QIB fell 14% to $11.5bn in the first six months of the year. Loans at DIB declined 3.3% to $16.2bn in the same period, while UAE loans grew 4.4%.
“We have seen an up-tick in lending in the UAE,” Jaap Meijer, the Dubai-based director of equity research at Arqaam Capital, said. “There are a lot of opportunities for UAE banks in the retail and corporates sectors” that will help drive their expansion, he added.
The UAE central bank expects to release revised limits for bank exposures to government-related entities in the next two months, the chairman of the Banks Federation said.
The central bank said in April 2012 that banks must not lend more than 100% of their capital to local governments and the same amount to government-related entities to help reduce risk.
“The forthcoming GRE lending restrictions from the UAE central bank will certainly be a key factor for the future growth trajectory of certain UAE banks,” Bhogaita said. “While they will still have ample scope to expand their balance sheet, they may need to work harder for such growth.”
Lending growth in Qatar will re-accelerate in 2014 after a visible slowdown during the first half of the year due to “administrative delays with certain projects,” S&P said. Islamic banks may grow an average of 15% over the next five years, it added.
“If the banks grow, they need to find the matching funding,” Timucin Engin, S&P credit analyst, said in an interview. “We might see some of the banks more active on debt issuances.”
QIB has total assets of $20.32bn compared with $30.26bn for DIB, according Bloomberg data. Total loans at QIB grew 62% in 2012 to $13.4bn compared to a 5.9% increase to $16.8bn at DIB.
“On our numbers, it could take until about 2022 for QIB to overtake DIB,” Meijer said.
• With assistance from Robert Tuttle in Doha