Qatari commercial banks’ credit growth is expected to fall to a more moderate 8% over the next 12 months, according to global credit rating agency Moody’s.
“Credit growth in Qatar is expected to reduce to still healthy levels of around 8% over the next 12 months, but down from 15% during 2013,” the rating agency said in a report ‘Banks - Gulf Cooperation Council (GCC): Persistent Low Oil Prices Challenge Regional Liquidity Conditions’.
The reduction in sovereign exposure during 2014 was primarily driven by maturities of capital market instruments, it said, adding high credit growth and tightening liquidity are pressuring the banks’ funding profiles, driving them to seek costly but longer-term market funding.
“The resultant funding gap is already pressuring system liquidity and driving banks to compete for deposits and, at the same time, seek longer-term, but costlier, market funding,” Moody’s said.
Low oil prices have pressured operating conditions for banks across the GCC countries, with real non-oil economic growth halving to an average of around 3% over 2016 from around 6% in 2014, it said.
Nevertheless, lower fiscal break even prices and large reserve buffers will support Qatar’s high public spending for an extended period for these systems, moderating the downside risks to both operating environments and, consequently, the banking sector fundamentals, the report said.
The country is still expected to deliver solid non-oil economic growth in the 8% range driven by continued infrastructure investments that provide stable growth prospects for 2016.
However, banks in Qatar have experienced a significant slowdown in overall deposit growth, to 6% over 2015 from above 20% during 2012-13.
Finding that subdued deposit growth and reducing flow of government deposits pressure funding and liquidity in the GCC banking sphere; Moody’s expects elevated liquidity pressures, particularly in Qatar, given the still very high proportion of government and related deposits (around 33%) in the system, which has already declined by around 8% during 2015.
“This liquidity pressure is exacerbated by the high credit growth expected, owing to very high levels of public spending needed for the 2022 World Cup and associated infrastructure development, as well as the significant slowdown in overall deposit growth to 6% for 2015 from an 18% compound annual growth rate during 2010-14,” it said.
Consequently, the loan-to-deposit ratio has already increased beyond 100% and liquidity levels have declined to 26% of total assets as of December 2015 from 31% as of December 2012.
In Qatar the real estate risks are moderate, where higher future volatility is expected to be reduced as a result of macro prudential measures taken by the regulator as well as the high demand generated around the spending related to 2022 World Cup.
“Lower oil revenues are driving tightening of liquidity in the GCC, with overall deposit growth slowing down significantly to around 3% in 2015 from around 10% in 2014,” said Nitish Bhojnagarwala, an assistant vice president at Moody’s and author of the report.