Credit stress tests have indicated that Qatar’s banking sector is at a “comfortable” position owing to the availability of “sufficient” capital, although “traces of risk” have been identified at the individual bank level, the Qatar Central Bank has said in a report.
The credit risk as measured through the level of non-performing loan (NPL) ratio declined, albeit marginally, the QCB said in its 11th Financial Stability Report.
Along with the decline in NPL, coverage ratio has improved, which further eased the stress on the banks in case of any eventual loss from the non-performing loans. Improvement in NPL ratio was broad-based, the QCB noted. The ratio declined for all the economic sectors, except from the credit provided to non-residents.
NPL from the non-resident sector increased by around 0.7 percentage points while the share of NPL from domestic private sector declined by 0.4 percentage points.
The slippage ratio, fresh accretion to NPLs during the year from the performing credit at the beginning of the year, considerably reduced to 0.12% as compared to 0.37% reported in 2018.
In nominal terms, NPL grew at a slower pace at 6.3% from the last year (23.2%). Overall, the extent of stress from credit risk declined due to improvements in asset quality and increase in coverage of delinquent loans.
In order to assess the impact of probable risk due to stress on corporate and household sector balances sheet, the QCB has stressed the banking sector’s credit portfolio by assuming high NPLs levels from the private sector.
It assumed stress on consumption sector credit at higher rate since individual sector holds more than half of the total NPLs.
A moderate stress condition is assumed for all other sectors except the public sector.
The stress test results showed that the capital ratios of the banks decline anywhere between 3.5 to 6.2 percentage points, the QCB noted.
“Individually, some of the banks need to augment their capital level to meet the prescribed minimum level of capital requirements,” the report noted.
In order to examine the threshold limits of NPLs the banking sector can withstand without adversely impinging on its capital ratios below the threshold minimum, the QCB conducted a “stress to break-even” analysis.
The analysis suggest, considering 12.5% as the benchmark minimum Capital to Risk (Weighted) Assets Ratio (CRAR) required to be maintained by the banks, at least 11% of the performing loans of all the sectors excluding the public sector (as at December 2019) has to turn non-performing so that the CRAR requirement breach the required minimum, the QCB said.
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