Continued credit demand for financing infrastructure projects for FIFA 2022 will provide ample opportunities for Qatar’s banking sector, the Qatar Central Bank said, but cautioned the lenders to “manage their funding profile so that the profitability remain intact.”
In its 8th Financial Stability Review, the QCB said the country’s banking sector continued to maintain strong capital adequacy ratios and low delinquency rates, despite strong lending growth in the recent years.
The QCB has been proactive in strengthening the banking sector and financial stability through quick implementation of Basel III and other macro-prudential policies.
Prudent management of credit portfolio has resulted in maintenance of delinquency at low level, contrary to the expectation of adverse spillovers from slowdown in the economy, the QCB said.
Higher capital coupled with low delinquacy rate made the banking system more resilient and capable of withstanding significant shocks. With the guidance on the application of the Internal Capital Adequacy Assessment Process (ICAAP), it is expected that capital buffers will be further improved to support a healthy asset growth.
“Subdued deposit growth, and corresponding inching up in funding costs, narrowed the interest margin. Increased requirement for provisioning expenses also add to pressure on profitability,” the QCB’s recent report showed.
Nevertheless, continued high credit growth, ability to faster asset re-pricing and strong efficiency moderated these pressures.
“Though profitability weakened over 2016, it remains solid overall,” the QCB said.
In his preface, HE the QCB Governor Sheikh Abdulla bin Saoud al-Thani said, “Notwithstanding the lower oil prices, Qatar economy remained resilient supported by its strong fiscal position and solid fundamentals of the financial system.”
He said the banking sector responded creditably to adverse shocks, while at the same time, making sure that the increased demand for credit from the relevant sectors is not jeopardised.
A more robust regulatory architecture has enriched the supervisory environment to ensure appropriate policies are in place or are undertaken, as and when needed.
“Graduated implementation of capital and liquidity requirements has enabled the banks to shore up their capital base and improve the liquidity profile. With our asset quality being one among the strongest in the GCC region, this has lowered the pressure on capital to provision for unwanted delinquencies,” Sheikh Abdulla said.
The broader financial sector, he said, also exhibited gradual improvements. The insurance sector, the largest among this sector, has been strengthened by renewed regulatory instructions to facilitate sustainable growth.
The payment and settlement system infrastructure remains robust and efforts are continuously underway to ensure its safety and buttress cyber resiliency.
Going forward, Sheikh Abdulla noted expansionary government policies, greater involvement of the private sector in the economic development and coordinated regulatory environment will enable Qatar to “successfully tide over the challenging macroeconomic times and turn it to our advantage.”
“Our financial system is adequately equipped to respond to incipient and emerging developments and ensure that the economy remains in fine fettle,” Sheikh Abdulla added.
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