Qatari banks grow despite inflation

(AFP)   

Banks in Qatar are benefiting from the economic boom in the oil-rich Gulf state despite high levels of inflation, new research has revealed.

Citigroup Global Markets in a recent report said Qatari banks are all displaying robust volume growth trends, strong fee income growth and low loan loss provisioning.

The firm said it expects Qatar’s economy to remain buoyant, growing at 6.3 per cent and seven per cent in 2008 and 2009, respectively. According to the report, the country’s banks have estimated the economy to grow at about eight per cent each year for the next two years. Citigroup forecasts Qatar will maintain a current account surplus – currently at 15.7 per cent of the GDP – for the next two years, with 14.8 per cent in 2008 and 11.9 per cent in 2009.

“On the fiscal side, the surplus is expected to narrow from 6.6 per cent in 2007 to 6.4 per cent in 2008 and 0.3 per cent in 2009 due to an aggressive government spending drive,” the report’s authors said.

Citigroup added that the top-tier local corporations in Qatar (‘Q-corps’) – primarily government-owned – are expected to become bigger. Aggressive expansion plans in companies such as Qatar Airways, Qatar Gas, Qatar Petroleum and Qatar Telecom are likely to fuel economic growth in the country.

And Qatar’s banking sector is positioned to benefit from the economic boom. “Most banks have established teams to cater to this particular client segment,” the report added. According to the research analysts, affluent Qataris are also creating opportunities in retail and private banking. GDP per capita is currently in the range of $73,000 to $75,000, (Dh268,056 to Dh275,400) according to the country’s banking sector, compared to $23,500 in 2002.

“Benefits from the government in the form of various allowances/grants allow Qatari nationals to maintain higher levels of disposable income, creating a niche client base for retail and private banking,” the report said.

Qatar National Bank, the country’s largest lender and half-owned by the Qatari Government, last month announced plans to establish an investment banking arm in the Qatar Financial Centre with an investment of $150 million.

QNB Capital – to be launched by the first half of this year – will provide investment banking services (advisory, structured finance) and direct investments, and is expected to drive fee income growth.

However, inflation – currently the highest among GCC countries at 13.8 per cent – is a key risk factor for the banking industry. The inflationary trend is expected to continue for the next 18 to 24 months due to a housing shortage, rising commodity prices and excess liquidity, Citigroup said.

And banks in Qatar have reported facing the challenge of strong cost pressures, although Citigroup added that they have managed better on this front so far than banks in the UAE.

Energy growth: According to the report, Liquefied Natural Gas (LNG) exports are expected to more than double from current levels of 31 million tonnes over the next three years.

Qatar is currently the largest exporter of LNG in the world and is more focused on energy diversification than other GCC states. 

The country – already home to 14 per cent of the world’s natural gas reserves and the largest non-associated gas field in the world, North Field – is currently developing LNG as well as Piped Gas and Gas to Liquid capabilities.

Citigroup also said high energy prices are expected to help buoy the country’s growth plans. “The hydrocarbon sector will continue to dominate the Qatari economy with a 60 per cent share of GDP, given that Qatar’s proven oil and gas reserves have estimated lives of 37 and 100+ years respectively.”

The sector contributes about 62 per cent to Qatar’s GDP and has grown at a CAGR of 33 per cent from 2002 to 2006.

“While minerals, lubricants and other hydrocarbon-related products account for 90 per cent of the country’s exports, gas exports (LNG as well as manufactured) account for about 38 per cent of Qatar’s exports in USD terms,” the firm added.

However, compared to the UAE, Qatar’s banking sector remains underpenetrated, with 16 banks in operation – nine of which are Qatari – as opposed to the UAE’s 50.

According to Citigroup, the loan/GDP ratio in Qatar amounted to 66 per cent as of end-September 2007, below the 104 per cent ration of the UAE. “Margins (NIM/average assets) at 2.43 per cent are in line with our Mena universe average of 2.50 per cent for 2007.”

The firm added Qatar’s banking sector is also able to further leverage itself at the average loans/deposits ratio for Qatari banks – at about 89.2 per cent – which is lower than that of CIR’s Mena universe (109.3 per cent).