The outlook for Qatar’s banking system remains stable as continued spending on the country’s infrastructure projects will drive modest economic growth and support lending, according to Moody's, an international credit rating agency.
The banks' sound profitability, capital and liquidity are expected to remain broadly stable, it said in a report.
Expecting real GDP (gross domestic product) growth to recover to 2.1% in 2019 and 2.2% in 2020, from 1.4% in 2018, driven mainly by the non-hydrocarbon sector; it said higher oil prices have improved the government's fiscal position and supported capital spending on infrastructure projects, including for those related to 2022 FIFA World Cup.
Qatar enjoyed uninterrupted fiscal surpluses from 2000 to 2014 followed by deficits during 2015-17. As the world's largest exporter of liquefied natural gas (LNG), Qatar produced surpluses averaging around 10% of GDP during the hydrocarbon-driven boom that started in 2000. The resulting accumulation of reserves underpins Qatar’s fiscal strength.
Finding that Qatar Petroleum (QP) lifted its moratorium on energy output in early 2017; Moody's said the first production from the new LNG project is slated to boost the hydrocarbon sector's contribution to GDP growth in two to three years and raise the level of GDP.
In addition, Moody's also expects the completion Barzan project by 2020 to lift hydrocarbon output.
Highlighting that non-hydrocarbon real GDP, driven mainly by the construction sector, expanded by 4.7% in 2018, Moody's said it expects a 4% growth in 2019-20.
Growth has been slowing since 2013 because infrastructure projects are gradually reaching completion. Some new manufacturing projects supported by the government with a view to strengthening food security (dairy farming) will support future growth in the non-hydrocarbon economy.
Additionally, QP-sponsored localisation of energy services will support non-oil growth and create demand for credit, including from small and medium enterprises.
Stressing that banks' profitability will remain solid as pressures are receding; Moody's said return on assets will remain broadly stable at around 1.5% going into 2020.
"We expect pressure on net interest margins to moderate because liquidity shortages have eased and the global trend of rising interest rates has reversed. Additionally the banks have re-priced their loan books at higher interest rates," it said.
Loan-loss provisioning needs will also stabilise and banks will continue to contain costs, with a cost-to-income ratio below 30%, the lowest among Gulf countries.
Although Moody's expects Qatari banks' loan quality to remain strong over the outlook horizon, it said their loan portfolios would face some "modest" pressure.
The slight rise in non-performing loans will be driven by ongoing stress in the construction, real estate and contracting sectors and mostly related to private-sector developments and projects.
The impact will be softened by continued capital spending by the government, which is supporting the economy and sustaining the repayment capability of corporates; regulatory caps on government-related lending (30% of total loans as of June 2019) to ensure controlled and coordinated government-related borrowing; and central bank guidelines that cap the interest rate on retail loans, which made up 13% of total loans as of June 2019.