TRIBUNE NEWS NETWORK

DOHA QATAR’s banking system outlook remains stable, Moody’s Investors Service said on Thursday. However, it cautioned that Qatar’s banks over the next one to one-and-a-half years face exposure to risky real estate sector.

The outlook “reflects Qatar’s strong macro environment and high public spending levels that will continue to sustain growth and bank lending activity over the 12-18 month outlook period,” the ratings agency’s said in its latest Banking System Outlook.

The outlook pencils in the banks’ limited asset-quality pressures, healthy capitalisation levels, stable deposit base, significant liquidity buffers and strong earnings potential.

The revenue of the banks is likely to rise with credit growth hovering between 20 percent and 25 percent during 2012 on strength of a projected six percent economic growth. High global oil prices, strong liquefied natural gas export volumes and accelerated public spending will also stimulate the non-oil economy and help to ensure the economic growth.

Non-performing loan (NPL) levels will likely remain relatively stable at around 2 percent of gross loans, supported by Qatar’s strong macro environment and improvements in the credit quality of banks’ consumer portfolios.

Following three rounds of pre-emptive capital injections by the Qatari government into the seven listed domestic banks between 2009 and 2011, culminating in a Tier 1 ratio of 20 percent as of December 2011, the sector’s solid capital buffers provide high loss-absorption capacity, in Moody’s view.

The rating agency says that core liquid assets — estimated at 34 percent of total assets in December 2011 — demonstratethat liquidity buffers are sound within the system, which remains predominantly deposit-funded. Moody’s notes that this will continue to benefit from the strong ties with the Qatari government, which contributed around 23 percent of sector deposits as of December 2011, forming a stable (though concentrated) funding source. It points out that the banks have increased their dependence on wholesale funding — primarily short-term foreign interbank balances — which account for approximately 33 percent of total funding as of December 2011. This degree of exposure leaves the banks vulnerable to shifts in market conditions and investor sentiment.

It point out that the return on average assets stood at 2.7 percent in 2011, one of the highest ratios amongst regional peers. Qatari banks’ interestrate margins will likely decline in 2012 due to the increased funding costs and the introduction of interest-rate caps on their retail portfolios.

However, Moody’s expects the system’s overall profitability to remain at comfortable levels, supported by higher lending volumes, low provisioning requirements and banks’ low cost bases.

However, Moody’s notes that the supportive outlook factors are counterbalanced by the banks’ high dependence on government-related business, which creates concentrations on both sides of the balance sheet. In addition, the banks’ dependence on the domestic economy, which is undiversified, remains heavily reliant on the oil and gas sector, whilst the banks’ aggressive loan growth exposures continue to pose credit risks.