Qatari banks’ provisioning costs have risen as they have built pandemic-related buffers with provisioning increasing to QR4.1bn in H1, 2020, Moody’s Investor Service has said in a report.
The first half provisioning consumed around 26% of pre-provision income compared to QR2.5bn and 17% in H1, 2019 as pandemic-related containment actions, the global economic shock and low oil prices weighed on economic growth and borrowers’ repayment capacity, it said.
According to Moody’s, many local banks are taking coronavirus-related provisioning pre-emptively as they expect problem loan formation in the sectors more exposed to the pandemic, such as hotels and restaurants, airlines, tourism and retail sectors amongst others.
Whereas in the remaining Gulf Cooperation Council (GCC), small and midsized enterprises have had a greater impact on asset quality, in Qatar this has not been the case, as they account for a small portion of the system’s loan book, and are supported by Qatar Development Bank (QDB) guarantees.
All the rated banks reported an increase in provisioning cost, with the exception of one bank, where provisioning costs were high in 2019 and reported a lower expense in the first half of 2020 compared to same period last year.
“We expect only a limited further deterioration in asset quality in H2, 2020, as the banks' lending books are heavily skewed towards government or related entities, accounting for 29% of total loans as of June 2020 and these loans will be more resilient.
“Retail exposure is mainly to Qatari nationals where job losses have been negligible, and the real estate market is in a cooling-off period for the past few years and new lending to the sector has therefore been relatively limited. Together these factors will limit the increase in provisioning costs, supporting Qatari banks' profitability.”
Qatari banks’ strong efficiency will continue to support their profitability, Moody’s said and noted in H1 2020, Qatari banks managed to improve operating efficiency through costs control measures such as reducing staff and travel expenses, which eased the pressure on bottom line profit.
Operating expenses decreased by 3% to QR5.5bn in H1, 2020 from QR5.7bn in H1, 2019 and the cost to income ratio was down to 26% in H1, 2020 from 28% in H1, 2019.
All of the eight rated banks experienced a lower cost to income ratio.
“We expect this trend to continue as we will see the full effect of the cost control measures, implemented in H1 2020, by the end of 2021,” Moody’s said.
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