A general view of the Qatar Central Bank in Doha. Overall assets of Qatari banks grew by 10.7% during the year up to August 2012 to reach QR772.6bn compared with QR698bn in December 2011, QCB data shows.

By Pratap John/Chief Business Reporter

Backed by a strong economy, Qatar’s banking sector continues the growth momentum with high asset quality and strong capitalisation despite turmoil in the sector in many countries across the globe.

The local banking sector is set to see another year of strong earnings in 2012 indicating its overall health and the quality of assets.

Recently, the General Secretariat for Development Planning (GSDP) said the non-performing loans (NPLs) in Qatar are “not a cause of concern” and the country’s banking sector expects credit risks to decline in 2012.

“Stress tests” and “stability indicators” attest the fact the balance sheets of local banks would be resilient to a range of adverse shocks including those emanating from the eurozone. This is clearly due to the fact that Qatar’s banks have minimal direct exposure to the bloc’s sovereign debt and their indirect exposure (through inter-bank assets) to the region is also limited.

Data published by the Qatar Central Bank show the overall assets of banks in Qatar grew by 10.7% during the year up to August 2012 to reach QR772.6bn compared with QR698bn in December 2011.

Asset growth was driven mainly by increasing loans that grew by 18.5% to QR479.7bn.

A study by QNB Group has highlighted the fact that the public sector, and principally government agencies and semi- government agencies, was the main driver of loan growth, increasing by 35% in the year to August 2012, to QR201.3bn. It accounts for the majority of loans in Qatar, and its share has grown from 22% (QR35.9bn) in 2007 to 42% (QR201.3bn) as of August 2012.

Financing large capital investments in the country’s infrastructure development has been the key driver of the public sector loan growth, the study shows. Government agencies, semi agencies and large corporate, which are engaged across economic sectors, are expected to continue to be the main driver of loan growth given the large development programme and infrastructure projects underway and to be implemented in the short to medium term. At the same time government spending will provide additional opportunities for the private sector and contribute to a rising consumer demand.

The QCB announced plans this year to establish a credit rating agency for domestic non-government entities, which will be a joint initiative along with Qatar Holding. While the initiative is primarily aimed at debt issuance and further developing the capital markets, it will also improve the availability of information for banking sector credit assessments.

On the funding side - Qatar’s banking sector deposits grew by 15.7% during the year up to August 2012, to reach QR420.6bn. Public Sector deposits increased by 17.3% during the year and accounted for 35% of overall deposits, while private deposits went up by 17.2% for the year and accounted for 61% of overall deposits, QNB Group says.

While the funding profiles of banks remain largely derived from customer deposits, banks are increasingly turning to the capital market, issuing long-term debt instruments. A recent example is QNB’s $1.8bn syndicated facility with a three-year maturity that was completed in August.

A key measure of the performance of the banking system is the quality of its assets, given the impact on the bottom line stemming from impairments on the loans and investment portfolios. In this regard, the Qatari banking system is well positioned with the overall NPL ratio declining to 1.7% in 2011, from 2.0% in 2010, which is among the “lowest in the region”.

The year saw country’s largest banking Group- QNB-launching its debut bond issue under its Euro Medium Term Note Programme, which amounted to $1bn with a 5-year maturity.

The “highly successful” issue received an overwhelming interest from regional and international investors. The bank has also successfully closed a syndicated facility amounting to $1.8bn with a maturity of three years that was competitively priced. This facility received a very strong interest from regional and international financial institutions and was several times oversubscribed.

In line with QNB Group’s strategy for international expansion, the bank increased its stake in Mansour Bank in Iraq to 51%. The bank’s stake in the UAE based Commercial Bank International was raised to 40%. Also, QNB acquired a 49% stake in Commerce and Development Bank in Libya, one of the leading private sector banks in the country.

Another premier lender, Commercialbank repaid a syndicated loan facility of $650mn while arranging a new $455mn term loan with a club of international banks, early this year. This year, the bank also issued a $500mn five-year unsecured fixed rate notes in the international capital debt markets under its Euro Medium Term Note Programme.

Just recently, Commercialbank said it agreed to commence negotiations with Anadolu Endüstri Holding for the acquisition of a majority stake in Alternatifbank, which is listed on the Istanbul Stock Exchange. Anadolu Endüstri is one of Turkey’s largest and most respected industrial conglomerates.

Qatar’s leading bank Doha Bank plans a 50% capital increase next year as it seeks to boost lending and expand in foreign markets. Doha Bank may raise as much as QR5.81bn by selling shares.

The country’s largest Shariah-based lender QIB established a $ 1.5bn sukuk this year and priced the first tranche of $750mn 5 year sukuk at par with a 2.5% semi-annual profit rate, representing the lowest profit rate ever achieved by any GCC financial institution.

This highly successful issue received an overwhelming interest from regional as well as international investors with the final book reaching $6bn representing eight times the subscription of the issue size.

This year, another local Islamic lender Qatar International Islamic Bank (QIIB) successfully priced a $700mn 5-year sukuk issued at par with a 2.688% annual profit rate, which would be settled semi-annually.

The issue was oversubscribed seven times and raised $5bn. The transaction represented QIIB’s first international debt capital markets issuance.