Qatar’s surplus fiscal balance and increasing government expenditure on major projects may boost public and private sector investment and credit demand from the banking sector, according to the Qatar Central Bank.
The country’s fiscal balance is projected to be in surplus this year, while government expenditure on major projects is around 43.3% of the total expenditure, the QCB said in its 10th Financial Stability Review.
This, the QCB said, may boost the public and private sector investment and credit demand from the banking sector. Further, the focus of the budget on providing necessary funds for the development of new housing areas for nationals, enhancing food security projects, establishment of infrastructure and facilities in free zones, special economic zones, and industrial and logistics zones may demand the banking sector to diversify their credit portfolio as well as to have a sustainable asset growth.
Taking advantage of government push for the SME sector development, banks are also focusing on credit to small and medium-sized enterprises, especially for agriculture, livestock and fisheries.
The banking sector in Qatar showed a resilient performance in 2018, the QCB said. Benign macroeconomic conditions coupled with proactive steps taken by authorities to protect the economy from challenges associated with the economic embargo proved beneficial for the banking sector.
Although banking sector assets grew lower than the previous year, 2018 witnessed a rebound of private sector credit demand.
Liquidity improved, supported by benign fiscal position and current account balance. Improvements in stock market also boosted the operating environment of the banking sector.
With strengthened macroeconomic conditions, capital flows are normalised fast. Rebound in non-resident deposits as well as fund flows from foreign financial institutions indicated confidence of investors in Qatari economy.
Improvements in domestic liquidity eased primary liquidity, which remained in surplus mode, with lower requirement of repurchase agreement (REPO) by banks for short-term liquidity management.
The banking sector reestablished the funding structure with healthier maturity structure and from diversified source.
Almost all the deposit from the embargo countries have gone out of the system, thereby reducing the volatility risk.
Capitalisation levels strengthened significantly, while NPL ratios are quite low and are adequately provisioned.
Moreover, banking sector profitability indicators also remained stable. Stress conducted by the QCB also showed improved resiliency of the sector towards plausible vulnerabilities. Overall, banking sector remained sound and in good stead during 2018.
Going forward, the banking sector is expected to benefit from various positive developments. Both domestic and external balances are poised to improve, buttressed by firming up of oil prices as well as positive outlook of the macroeconomic conditions, the QCB said.
“Even though domestic macroeconomic environment is quiet benign for a sustainable development for the banking sector, challenges to the banking sector cannot be ruled out completely. Weakening of the global economic development can have some spillover effect on the banking sector through tightening of global financial market and lower energy prices,” the QCB said and noted that “further developments in the US monetary policy also need to be carefully monitored.”
The banking sector’s dependence on external funds and the associated cost also needs focused attention to keep the profitability of the banking sector to grow at a sustainable level, the QCB said.
However, the probabilities of manifestation of such downside risks seem to be limited. Moreover, heightened capital buffers and low delinquency rate strengthen the ability of banks to withstand much higher levels of stress.
The QCB on its part is continuously evaluating and strengthening the regulatory and supervisory systems to ensure that the financial system remains safe, stable and solid and is resilient enough to address unforeseen challenges.