TRIBUNE NEWS NETWORK

DOHA THE stable outlook for Qatar’s banking system over the next 12 to 18 month period faces risk from exposure to construction and real-estate sector, Moody’s Investors Service has cautioned in its Banking System Outlook on Thursday.

“Moody’s consider Qatari banks’ exposure to the fragile construction and real-estate sector as an area of concern, at 19 percent of loans in December 2011. As at end-December 2011, delinquencies in this sector remain below 2 percent of gross loans. Although the QCB limits the banks’ aggregate exposure to the sector to 150 percent of Tier 1, we believe that bank asset quality might deteriorate if there is renewed stress in this market, particularly given the fast credit growth in this segment during 2011 and anecdotal evidence of vacant stock.

During 2011, loans to the construction and real-estate sector rose by 49 percent, outpacing total loan growth of 25 percent .

Third-party research shows that there are currently high vacancy rates for commercial spaces (20 percent in November 2011) leading to a drop in commercial rents of between 20 percent to 30 percent since 2008, whilst for 2012-13 prices will likely remain under pressure, as new units come onto the market.

The report also said that structural weaknesses relating to high single-credit concentrations will persist over the outlook period it said adding that Moody’s expects that the structural weaknesses relating to the large single-party exposures will persist over the outlook period and continue to expose the banks to event risk.

“We estimate that the top 20 group exposures on aggregate comprise between 150 percent to 200 percent of the banks’ Tier 1 ratio.

The high government representation within these top exposures – either through loans to government and government related entities or holdings of Qatari government bonds (rated Aa2) – partly mitigates the risks, because these exposures have a low likelihood of default,” the agency said in its report.