Qatari banks need to depend less on deposits and issue more debt and Islamic bonds to raise capital if they are to continue fuelling the country’s breakneck expansion without encountering future problems, an executive at Standard & Poor’s said.
Loan growth in the Gulf Arab state, which posted a 14.1 per cent increase in GDP last year, stood at 28 per cent in 2011, according to a new report from the ratings agency on the state of the Gulf Cooperation Council (GCC) banking sector.
Slower deposit growth however meant that Qatari banks would need other sources, such as bonds and sukuk, to maintain credit growth and avoid funding problems in future, said Timucin Engin, associate director, financial institutions, at S&P.
“This is going to become an issue as the market grows because lending growth is very fast and deposit growth is coming below the lending growth,” Engin told reporters on Wednesday at the launch of the report.
S&P said that GCC banks had avoided the problems of the Eurozone crisis and would, for the most part, see increasing profits as recent provisioning subsided.
Qatar National Bank (QNB), the state’s largest lender by market value, reported loan growth of 55.9 per cent in the first half of the year, while deposits in the same period grew 25.3 per cent.
QNB, as well as Commercial Bank of Qatar and Doha Bank, have all tapped debt capital markets so far this year.
Although banks are among the most active issuers of bonds and sukuk from the Gulf Arab region, their frequency of issuance pales compared to lenders elsewhere in the world.
But demand for bonds from Gulf financial institutions is high, in part due to a regional premium on offer for political risk versus similarly-rated banks in the West, and to the strong appetite among Gulf banks to invest in fixed income instruments.
“There’s quite an interesting circular dynamic here in terms of banks having the balance sheet capacity against capital to issue sukuk and also appetite among regional banks to hold that paper,” Stuart Anderson, S&P’s Middle East head said.
Investing in fixed income paper from other GCC countries also helped diversify a bank’s asset base, Anderson added, which has traditionally been focussed in a narrow range of sectors in their home countries.