The growth in NPLs of local banks during 2014 was merely 2.2% compared to 25.8% in 2013, the Qatar Central Bank said in its 6th Financial Stability Review. PICTURE: Nasar TK

By Pratap John
Chief Business Reporter


Local banks’ non-performing loans (NPLs) ratio declined considerably in 2014, indicating moderation of credit risk during the year, according to the Qatar Central Bank’s latest financial stability report.
The growth in NPLs during the year was merely 2.2% compared to 25.8% in 2013, the QCB said in its 6th Financial Stability Review. “Thus the banks seem to have been more prudent in lending in the recent past,” the QCB said.
Intra-year variations indicate better asset quality management in the second half of the year.
During the first quarter of the year there was almost no growth in NPLs. As a result, the incremental ratio and slippage ratio were nil. There was some increase in NPLs during the second quarter but it was almost offset by the decline in the NPLs during the third and fourth quarters of the year. The slippage ratio remained nil in both the quarters.
As in the previous two years, the share of NPLs in the private corporate sector continued to moderate.
The share of NPLs outside Qatar after increasing for three years was stable during 2014.
“The share of NPLs in personal loans category has been rising rapidly and the banks need to monitor these loans more carefully to rein in the loans in this category,” QCB said.
As in the previous Financial Stability Reviews, stress-testing of credit risk was done through potential deterioration in major segments of private sector credit, viz. real estate, consumption and contractors.
The combined NPLs of these sectors was progressively raised to find the breakeven point. The breakeven capital adequacy ratio (CAR) has been raised to 12.5% as per the capital requirements specified by the QCB under Basel III guidelines for banks in Qatar.
It is observed that if the NPLs increase by 14% from its current level, then the systemic capital adequacy ratio (CAR) will fall to 12.5%. Any further increase in NPLs would bring down the systemic CAR below the regulatory minimum.
QCB analyses of bank level data indicate that some banks may breach the minimum regulatory capital requirement at much lower growth of NPLs in the three major segments of private sector credit considered above.
According to the QCB, changes in the ratio of credit to GDP are generally used in developed economies to assess the credit risk in the financial sector.
However, in economies where there is still some scope for greater financial inclusion and financial intermediation, a steady increase in the contribution of credit to GDP is desirable.
Nevertheless, any rapid increase in the ratio needs to be monitored and is fraught with risk.
In Qatar, the ratio of credit to GDP is growing steadily and is currently just above 84%.
While the ratio of public sector credit to GDP moderated during 2014 that of the private sector rose significantly, which can be attributed to the policy thrust towards diversification and increase in the role of the private sector, the QCB said.