The Banking Executive Magazine - October 2023

Qatari Banks’ Profits QATARI BANKS’ PROFITS TO REMAIN ROBUST IN 2023 With the augmented and elevated in- terest rates, the profits of Qatari banks will remain resilient in 2023 and during the first half of 2024, states Fitch Solutions in its recent re- port. The higher lending rates will also continue to support the bank’s in- come throughout the period, says Fitch adding that “Increased reliance on domestic funding is pushing cost of funding upwards, weighing on net interest margins.” Outlining the ‘asset quality’, the re- port noted that the banking industry NPL ratio surged from 2.2 percent in 2019 to 2.9 percent last year, mainly due to the end of Covid-related sup- port. However, analysts at the research or- ganisation anticipate the ratio to drop in 2023 as banks focus on improving loan quality. It said: “The ratio re- mains low compared to other MENA countries and the GCC average of 3.8 percent in 2022.” In terms of ‘capital adequacy’ Qatari banks remain well capitalised, with the capital adequacy ratio (CAR) ad- vancing from 18.6 percent in 2019 to 19.3 percent in 2022. The report re- marks this growth is well above the 10 percent minimum requirement and the GCC average of 18.6 percent in 2022. On the other hand, banks in Qatar are heavily reliant on ‘foreign fund- ing’. Fitch underlined that “While the share of foreign funding has declined from a recent high of 40 percent in October 2021 to 35.3 percent in Au- gust 2023, this proportion remains high, especially compared to peers, exposing the banks to vulnerabili- ties.” The researchers believe that new reg- ulations to disincentivise reliance on non-resident deposits for financing will help reduce the exposure to for- eign funding. The industry’s loan-to-deposit ratio has been steadily rising over the years, reaching an all-time high of 128.3 percent in August 2023. As this suggests that lending oppor- tunities are maximised, it is above the prudential limit of 100 percent and accentuates probable vulnerabil- ities to liquidity risks if banks do not have sufficient funds to cover with- drawals. Fitch stated that “The QCB has at- tempted to address this issue by modifying the loan-to-deposit ratio calculation to include banks’ bor- rowing with different maturities in 2022, but the ratio has continued to increase.” “We believe that these risks will be offset by the sovereigns’ substantial foreign assets. Indeed, the Qatar In- vestment Authority (QIA) has USD475bn (QR1, 729.47bn) in as- sets under management, equivalent to 200 percent of GDP and 25 per- cent of bank assets,” it added. the BANKING EXECUTIVE 14 ISSUE 178 OCTOBER 2023