Year-end Review
Qatar's banking sector demonstrated resilience and registered an impressive growth in business during 2021, driven by the need to continue to support the country's future ambitions.
The measures taken by Qatar Central Bank (QCB) helped to keep a check on the asset quality of the banking sector this year.
Qatari banks’ total assets have increased 0.2% month-on-month (MoM), up 6.7% year to date (YTD) in November to reach QR1.795tn.
Local lenders’ costs continue to remain the lowest in the region, which reflects the relentless focus on efficiencies to help counter the impact of increased provisioning.
Despite the financial uncertainty arising from Covid-19, Qatar's listed banks recorded the lowest profit decline amongst its regional peers, KPMG had said in an earlier report.
“Increased loan provisioning as a result of liquidity and credit challenges being faced by borrowers reflected the more cautious approach taken by banks. This impact was partially offset by higher interest spreads and lower costs,” KPMG said.
Amid the challenges posed by the pandemic, the local economy and the banking system could maintain stability thanks to proactive steps taken by the Government of Qatar and the QCB.
One area of particular focus was the support mechanism for small and medium enterprises (SMEs). A distinct part of these measures included injecting capital into systemically important sectors, thereby to an extent, neutralising the short-term impact on the financial market.
The overall loan book (of Qatar’s banks) went up by 0.5% MoM last month to reach QR1,213.8bn, while deposits fell 0.2% in November to QR963.8bn.
Qatar banks' net profit returned to pre-pandemic levels in the first half (H1) of 2021, mainly on an increase in net interest and non-interest incomes, according to Moody's, a global credit rating agency.
The net earnings improvement is despite higher the provisioning charges, the rating agency said, highlighting that the lenders it rate reported an aggregate net profit of QR11.8bn, up 12% from the year-ago period.
Net interest income increased, mainly due to a sharp reduction in interest costs, it said, adding total operating income rose 11% to QR23.8bn in the same period in 2020.
The rise was largely driven by a reduction in interest expenses due to the low interest rate environment, it said, highlighting that the interest costs fell 16% year-on-year, more than offsetting the decline in interest income (3% versus the first half of 2020).
The result was an overall increase in net interest income, although net interest margins remained broadly stable at 2.2%, reflecting strong loan growth of 9% year-over-year.
Despite an overall challenging economic environment due to the pandemic, the banking sector expanded its balance sheet supported by low-risk public sector credit growth, according to Qatar Central Bank.
Banks demonstrated prudent management by proactively increasing their provisioning and improving their structural liquidity conditions. Banks managed their cross-border risk well by suitably adjusting exposure to different geographies while reducing the withdrawal risk by lengthening the maturities.
Financial sector infrastructure provided the needed support amid difficult operating environment during the year. Sharp increase in demand for electronic payment methods, particularly due to the closure of exchange houses and reduced working hours of banks were seamlessly handled.
The year saw QCB continuing several measures to support Fintech and non-bank payment service providers in the development of Qatar economy.
These included a regulatory framework for licensing and overseeing operations of Fintech and a regulatory sandbox that supports Fintech and other innovators to conduct live experiment in a controlled environment under QCB's supervision.
The non-banking financial sector in Qatar comprising of insurance firms, QDB, finance and investment companies exchange houses and QFC institutions fall under the regulatory purview of the QCB and QFC Regulatory Authority (QFCRA).
Despite the ongoing impact of Covid-19 pandemic, the assets of QCB regulated non-bank financial institutions sector in Qatar continued to record a healthy growth this year.
This year Qatar’s banking sector had witnessed the “successful merger” of two prominent banks - Masraf Al Rayan and Al Khaliji, creating one of the largest Shariah-compliant lenders in the region with more than QR182bn in total assets.
The two banks are considered one legal entity bearing the name Masraf Al Rayan with its head office in Lusail City.
Overall, Qatar’s banking sector remains safe, sound and solid. The sector has a high capital cushion level while the loan delinquency levels are low.
At the same time, liquidity improved as banks were able to obtain funds from both external and domestic sources.
Therefore, most experts believe Qatar’s banking sector will post sustainable growth, supported by favourable macroeconomic environment in the post-pandemic era.