Funding and liquidity are no longer the key risks to Qatari banks, as $24bn in non-resident deposits and interbank placements have flowed back into the system since November 2017 and their capitalisation is supported by “healthy” internal capital generation, according to Fitch, a global credit rating agency.
However, Qatari lenders face asset-quality pressure stemming mainly from the realty sector, which is facing falling prices and rents owing to oversupply, the agency said in a report.
It found that around $24bn in non-resident deposits and interbank placements have flowed back into the banking system since November 2017, after falling by $30bn in June-October 2017 due to the blockade.
Non-resident deposits accounted for a high 21% of total banking system deposits at end-2018 (up from 17% on the prior year) but this is less of a risk as the government has demonstrated its ability and propensity to replace deposit outflows to maintain banking system liquidity, Fitch said.
Qatari banks' net interest margin (NIM) has suffered from increasing funding costs but stabilised in the first half of this year, it said.
However, profitability has been increasing, owing to better cost efficiency and lower loan impairment charges (LICs).
"Looking ahead, profitability metrics will largely depend on LIC levels, and volatility is likely at banks that have higher exposure to the real estate and contracting sectors," the report said.
Nevertheless, Qatar Central Bank's (QCB) real estate price index fell 3.6% in the first half of 2019, after declining 3% in 2018 and 10% in 2017, and" we expect declines to continue as more supply comes on stream in preparation for the football World Cup in 2022", it said.
Pressure differs across banks depending on the type of real estate being financed, the developer, the structure of the facility and the collateral, it added.
Forecasting real annual economic growth at around 2% in 2019-21 (2018: 1.4%), Fitch said total banking system credit growth was 3% in first half of 2019, mainly driven by the private sector (up 9%).
Credit growth could slow if private-sector activity and investment are insufficient to offset volatility in government capital spending, it cautioned.