Qatar: Banking goals

Although the 2022 football World Cup is more than a decade away, analysts are already predicting increased loan activity and investment management in Qatar’s banking sector as the economy gears up to host football’s showcase event.

Following the decision awarding Qatar the tournament on December 2, Moody’s Investor Service issued an advisory note forecasting that, as a result, Qatari banks would enjoy enhanced business opportunities, better development of domestic franchises, and increased revenues.

“As the country prepares for the World Cup, we expect all Qatari banks to benefit from stronger economic activity and higher credit demand in the next 12 years,” said the report, issued on December 5.

“We estimate that accelerated government spending of $57bn over the next decade for infrastructure development projects relating to stadium construction, accommodation, and upgrading of existing transportation systems will create new lending activity for all banks,” wrote Moody’s.

While the ratings agency said Qatar’s larger banks would stand to benefit the most from the heightened financial activity associated with preparing for the competition, there will also be opportunities for smaller lenders involving smaller projects, contracting, and sub-contracting.

It is on the sidelines of World Cup preparations where domestic banks are expected to score big, with the private sector set to invest heavily in hospitality and property projects.

While some had raised concerns over whether Qatar will have to dip into the debt market, others believe the state and the banking sector will easily manage the massive demand for financing.

“As in the past, most of the infrastructure will be financed via the budget revenues, directly coming from the oil and gas sectors,” Luc Marchand, an associate director at credit ratings agency Standard & Poor’s, said in an interview with Abu Dhabi’s The National on December 5. “Private sector financing [will be] asked to play a bigger role, notably in the hotel industry and real estate.”

Qatar’s banks are in a good position to expand as the economy continues to post strong growth figures, being well capitalized, profitable and only having a low level of non-performing loans on their books, Qatar Central Bank (QCB) governor Sheikh Abdullah bin Saud al-Thani recently told OBG.

The country’s banks have taken a series of steps aimed at strengthening the sector, including boosting liquidity and encouraging lending activity, while even more is being done to reinforce risk management measures, he said.

“A good starting point is, therefore, to have prudential regulations that allow diversification of assets so as to spread risks. Taking these considerations into account, the QCB has instituted a gamut of regulations to diversify risks,” Sheikh Abdullah said.

Another step being taken to ensure that banks are not affected by future stresses is the fast-tracking of the implementation of the Basel III guidelines, which include raising minimum capital levels and strengthening firewalls against risk.

On December 6, Yousef Hussein Kamal, Qatar’s minister of economy and finance, announced that the Basel III proposals for the banking sector would be in place by 2013, five years ahead of deadline.

Given that most Qatari banks are already carrying capital adequacy ratios of around 15%, more than twice the level set under Basel III, and with the sector only likely to get stronger in the coming years, it seems as if the core requirement of the guidelines will easily be met.

With these fundamentals secured, Qatar’s banks are starting to play a more expansive game, increasing lending. In October, there was a 2.2% rise in lending month on month, with banks loans standing at $75.3bn, up from the $73bn at the end of September, according to data issued by the central bank in late November.

Even without the stimulus of the World Cup, Qatar’s economy has been expanding at a world beating rate, with GDP growth expected to be 15% or more for the year. Now, with the goal of helping to stage an event second only to the Olympic Games on the international sporting calendar, Qatar’s banking sector is looking towards even greater loan activity and investments.