The provision of credit and economic diversification
May 15 2016 01:58 AM
THE
Dr Abdulaziz A al-Ghorairi is senior vice-president, chief economist and head of asset management at Commercial Bank.

By Dr Abdulaziz A al-Ghorairi

Continuing my series of articles on the development of Qatar’s financial sector and its contribution to economic diversification, the topic of discussion this week is bank credit.
Banks play the all-important role of credit facilitators in any economy. As Qatar is able to fund projects from oil and gas wealth, the provision of credit might not appear as significant here as compared to other countries where bank deposits are an essential part of the cycle of investment and growth. However, it is due to Qatar’s need to diversify and expand the private sector, rather than a need for capital, that the role of banks as facilitators of credit still is highly important.
Banks in Qatar were traditionally providers of capital and facilities to public sector companies which were majority-owned by the government and the credit risk or risk of default on these facilities was minimal. However, as the economy opened up and the government encouraged lending to the private sector, the banks faced a steep learning curve as they had to adhere to the prudential universally-followed credit norms while engaging in an act of provision of credit. So far, Qatari banks have been successful in adapting themselves to this new role and the massive expansion in credit to the private sector has been one of the most important roles that the banks in Qatar have played in recent times.
Besides government spending, consumption expenditure has been an important contributor to economic growth in Qatar and the banks have stimulated growth through the provision of credit for the purpose of consumption. Credit for consumption has been the single largest component of total credit for Qatari banks, with loans provided for consumption purposes being even greater than credit made available to the public sector. This has contributed directly to higher standards of living and an increase in gross domestic product as consumption expenditure is a main component in the calculation of GDP by expenditure method.
To summarise, credit facilities provided by Qatari banks have contributed to Qatar’s economic development in two main ways: one, by aiding the emergence of the private non-oil and gas sector which has diversified the economy, and two, by directly increasing the consumption expenditure of Qatar’s population. Together these two important factors have contributed significantly to the development and diversification of Qatar’s economy.



There are no comments.

LEAVE A COMMENT Your email address will not be published. Required fields are marked*
MORE NEWS

HAPPENING IN DOHAMore