Qatar wealth fund boosts confidence in banking sector
Source: BI-ME and agencies , Author: BI-ME staff
Posted: Mon December 29, 2008 12:00 am
QATAR. The greatest vote of confidence on the Qatari banks came from the country’s sovereign wealth fund – the Qatar Investment Authority – a few weeks ago when it decided to buy local bank shares in a US$5.3 billion plan. The QIA will buy between 10% and 20% of the banks’ listed capital on the Doha Securities Market based on closing share prices on 12 October.

The plan came amid government’s efforts to prevent the contagion from the global financial crisis from spreading to the region in general and the country in particular.

The global downturn has already forced local banks to adjust lending procedures, rendering it difficult for customers to borrow money either for mortgage or personal needs.

The Qatar Central Bank has taken a series of steps this year to ensure local banks were not overexposed to real estate, which is affected by the economic downturn and expected to go through a major correction in 2009. Local banks are now forbidden from extending more than 15% of their equity as finance to real estate. A mandatory deposit up to 35% will be required if a customer wants to take out mortgage finance from local banks.

Although Qatar is among the least affected by the global economic turmoil due to its strong macroeconomic fundamentals, plunging global oil price is certainly raising concerns over the future growth of the Gulf Co-operation Council region as a whole.

This is why local banks are tightening lending; imposing tighter curbs on mortgage financing and personal loans. Until August, the banks had seen their credit portfolio expanding. It had gone up by 58% to QAR217 billion, the QCB said.

Interestingly, credit off-take by the real estate, industry, public sector and services segments outpaced the industrial average of 58%, even as personal loans constituted the largest share of domestic credit. This ought to change in 2009 with new lending regulations in place.

Merrill Lynch has noted that Qatar’s banking sector liquidity had clearly tightened since the first half of 2008. Nevertheless, it said local banks are still in a “comfortable liquidity position” and are “less exposed” to the retrenchment of external liquidity compared with the UAE.

Many Qatari banks continued to tap foreign shores as competition hots up in the home market Some of the local commercial banks have also ventured into Islamic finance, the latest being IBQ.

After obtaining approval from the QCB to launch Islamic services in the country and introduce a suite of corporate and retail Islamic banking products, IBQ’s Shariah-based banking arm Al Yusr last week arranged a QAR324 million Murabaha facility for Doha-based Ezdan Contracting Company.

Many local banks have forayed overseas, either acquiring a stake in foreign banks or opening branches or representative offices this year. They include QNB, Commercialbank, Doha Bank, QIB, International Islamic and Al Khaliji.

QNB, Commercialbank and Doha Bank continue to dominate the non-Islamic banking sector by virtue of their size, reach and coverage.

“They have competitive advantage over the smaller ones on account of strong brand equity and distribution coverage”, an analyst said.

In mid-2008, domestic liquidity reached an all-time high of QAR150 billion, up 27.5% on 2007.

Domestic liquidity is a key driver of consumption and investment, and thus, economic activity or income. It is made up of assets that can be sold or bought relatively easily and includes bank accounts, mutual funds or stocks held by individuals or businesses.

QCB figures indicate there was an increase in demand deposits with local banks, which rose by 63.6% to reach QAR50.5 billion in June. Savings and time deposits increased by 20.8% to reach QAR72.8 billion in June compared with QAR60.2 billion in December 2007. Customer deposits with Qatari banks totalled QAR208.5  billion in June, up 24.1% on 2007.

The engine of growth for local banks will continue to be the Qatari economy. The country’s GDP is set to double in the next five years.

The underlying fundamentals of the Qatari economy are very strong. The per capita consumption has also been projected to grow in the coming years though the pace may slow down due to the global economic turbulence.

A senior banker said: “Qatar’s commitment to upgrade its infrastructure and push industrial expansion will create immense opportunities for all of us. Sitting on huge gas reserves, the impact of global economic crisis on Qatar will be more of sentimental in nature. We have no reason to panic.”
 

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