Notwithstanding persistently low oil prices, Qatar's banking sector could continue to provide support to the real sectors by providing credit, while keeping the non-performing loans in check, the QCB said its latest Financial Stability Review.
Although the capital adequacy ratios moderated a bit, banks remain healthy overall as more than 80% of its non-performing loans are provisioned. Market liquidity stood at comfortable levels and banks borrowing cost remained under control.
“Through regulatory oversight and forward looking stress tests, the banking sector is monitored on a closer and continuous basis,” the QCB said.
In order to identify the source of banking sector vulnerabilities in advance, an ‘Early Warning System’ is being developed, it said.
Non-performing loan (NPL) as a percentage to gross loan fell to 1.6% in 2015, the review showed. Even in nominal terms, NPL inched up by less than 3% over 2014. Changes in the quarterly slippage ratio and incremental ratio also confirm the better credit quality of banking sector loans.
The quarterly growth in non-performing loans, which measures the credit risk on account of fresh non-performing loans, was even negative in June 2015, indicating a reclassification of NPL into performing or write-off of NPLs, which are fully provided for.
In other period, the growth in NPL was low except in the last quarter, the QCB said. On a year-on-year basis, the fresh slippage ratio" stood at 0.34% in 2015 almost at the same level recorded in 2014 implying substantially high and better quality of credit during both these years.
Around one third of the credit is provided to public sector, where the NPL remained nil, it said. Therefore, the credit risk for the banking sector is limited to private sector and cross-border.
Credit risk from the private sector, which covers around 80% of the non-performing loans, declined during the year as the NPL ratio declined from 2.7% to 2.2%.
Among private sector components, NPL ratio for individual declined from 4.6% a year earlier to 2.7% in 2015, indicating a substantial decline of credit risk from this segment. This decline contributed to the overall reduction in gross NPL along with an increase in credit provided to the sector, the QCB noted.
At the same time, credit risk from domestic private corporate sector increased as gross NPL grew, the QCB pointed out. On cross-border credit, the credit quality improved in 2015 as indicated by the decline in NPL ratio from 3.1% to 2.6%, although a part of this decline is attributable to an increase in the denominator.
“With increased involvement of the private sector in the ongoing infrastructure development projects and considering the fact that private sector credit is on an uptrend, to supplement the credit risk analysis, we have employed a ‘boom-bust’ stress scenario for the banking sector’s balance sheet,” the QCB said.