Qatar's banking sector is slated to see strong capitalisation and adequate liquidity as well as decline in average non-performing loan (NPL) ratio, according to Standard and Poor's (S&P) Global."The (banking) system (in Qatar) has proven resilient during previous episodes of elevated geopolitical turmoil, though Qatari banks significant reliance on external funding means they remain exposed to this risk," S&P Global said in its latest report.Qatari banks' net external debt was about $121bn as of November 30, 2025, equal to about 32% of domestic lending, it said, adding about 52% of external debt is composed of non-resident deposits and interbank funding – together accounting for $109bn as of November 30, 2025.Considering this debt to be subject to the potential for outflows in the event of a significant spike in geopolitical risk; it notes that such outflows were limited when targets in Qatar were attacked by Iran and Israel in 2025, with about $3bn of total outflows in each of August and October."That muted response reflected investor expectation that the resulting instability would be short-lived with limited financial stability implications," it said.Despite a slight decline in Qatari banks' net interest margin due to soft interest rate regime because of fixed exchange rate parity with dollar; it expects Qatari banks to maintain good capitalisation (average Tier 1 capital ratio was 19.5% as of September 30, 2025), underpinned by good profitability and a dividend payout ratio below 50%.Capital quality also remains strong with only about 15% of total capital consisting of hybrid instruments during the review period.Highlighting a stable outlook for the Qatari banking sector’s asset quality; it expects the estimated system-wide average NPL ratio to decline to about 3.4% in 2026-2027, down from an estimated 3.7% in 2024-2025, supported by the stable asset quality of two largest banks.Although problem loans have remained relatively high at some midsize banks due to their real estate exposure; S&P said "we expect new NPL generation to remain modest amid steady improvement in the performance of the real estate sector."Still, legacy real estate exposures will contribute to significant Stage 2 loan exposure for some mid-sized banks, it cautioned."Nevertheless, we expect interest rate cuts, precautionary provisions booked over the past few years, and a combination of recoveries and write-offs should help stabilise asset quality," it said, estimating system-wide coverage ratio to remain above 100% in 2026-27 compared to about 128% as of as of September 30, 2025.
