Qatar banking sector external liability may widen, says S&P
September 20 2015 10:57 PM
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Qatar’s banking sector may see widened net external liability position and higher loan-deposit ratios as public and private sector spending is likely to be largely funded by borrowing from domestic financial entities, according to Standard & Poor’s. PICTURE: Nasar TK

Qatar’s banking sector may see widened net external liability position and higher loan-deposit ratios as public and private sector spending is likely to be largely funded by borrowing from domestic financial entities, global credit rating agency Standard & Poor’s (S&P) has said.
The increased pressure on the domestic banking comes in the wake of Qatar’s continued public investment despite large fall in oil prices and “challenges” in its competitive position in the global liquefied natural gas (LNG) supply chain, S&P said, affirming its ‘AA/A-1’ sovereign rating with “stable” outlook.
Alongside government investments funded through the budget, public-enterprise and private-sector spending on the national development strategy is likely to be largely funded by borrowing from domestic financial institutions, it said, adding “this may cause banks’ net external liability positions to widen and their loan-to-deposit ratios to rise, as we expect deposit growth in the Qatari banking system to gradually decelerate due to low oil prices.”
Highlighting that the large drop in oil and natural gas prices and the government’s public investment have led to a deterioration of the fiscal balance beginning in 2014; it said “we expect the general government balance to fall into a deficit of 4.5% of GDP in 2016, from a modest fiscal surplus in 2015 and our outlook assumes that public spending will continue as the investment programme advances.”
In view of lower hydrocarbon revenues and increased spending, Qatar is prioritising existing projects, focusing funding on the highest-priority and strategic investments, it said.
Estimating about $220bn of large-scale investment projects to be awarded over the next 10 years; S&P said it will focus on infrastructure, education, and health; the majority of these projects to be completed ahead of 2022 FIFA World Cup.
This is despite challenges to Qatar’s competitive position in the global LNG market in the medium-to-long term due to new shale production, Russia’s gas pipeline to China, and increased pressure to delink LNG contracts from the price of oil.
However, Qatar’s strategy has been to diversify into all major markets, adjusting the mix of destinations and contract types according to market needs, S&P found.
Expecting Qatar to maintain its cost advantage over many new projects in other countries, S&P said since it produces and exports significant quantities of condensate and natural gas liquids associated with natural gas, its effective average cost of producing LNG is much lower.
“We expect an average annual decline in crude oil production of about 5% over 2015-2018. We project largely flat gas output (LNG and natural gas), given Qatar’s moratorium on new investments in the sector, while condensate volumes will likely to increase by about 5% per year over the same period,” it said. Qatar’s economy grew by about 6% over the last three years, but the rating agency expects growth to slow to about 4% during 2015-2018.
The hydrocarbon sector will likely continue to stagnate; while the non-oil sector, on the other hand, should remain “buoyant”, thanks to public investment and supported by the growing population, it said.
Qatar’s external surpluses are to narrow “substantially” in the medium term as export receipts fall sharply between now and the end of 2016, while import demand remains strong, S&P said. The transfers and income accounts of the current account will remain in deficit, the former due to remittance outflows as a result of the expatriate population and the latter due to payments to the foreign firms that partner with Qatari companies in the oil and gas industry, it said.
Estimating that Qatar’s net external asset position to remain strong at about 250% of current account receipts in 2015-2018; it said Qatar has accumulated considerable foreign assets over the past decade, as a result of its development of its natural resources.

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