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Fitch: Qatari Banks Overcome Liquidity Crunch; Negative Impact on Profitability
March 22, 2017 / 3:32 PM / 7 months ago

Fitch: Qatari Banks Overcome Liquidity Crunch; Negative Impact on Profitability

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Qatari Banks’ Results Dashboard here DUBAI/LONDON, March 22 (Fitch) Fitch Ratings says Qatari banks have overcome a liquidity crunch with a large negative impact on profitability. Funding costs continued to rise in Qatar in 2016, putting significant pressure on all banks' operating profitability metrics. The main reasons for the increase were Qatari banks' high reliance on corporate and government-related interest-bearing time deposits and lower liquidity in the system given lower oil prices. Banks made efforts to rein in operating expenses, but the sector average cost/income ratio increased by 3.5% in 2016 due to higher funding costs. Asset quality metrics remained strong in 2016 but there was some pressure in contracting and real estate, and loan impairment charges/loans ratios have been rising. Impaired loans ratios remain lower than other GCC markets and exclude an increasing number of restructured loans in the more challenging operating environment. Loan-loss reserves are adequate as a proportion of impaired loans (at nearly 100%) but low compared with gross loans. Liquidity and funding pressures have stabilised in the banking sector since 2Q16 and banks have been actively managing their loans/deposits ratios close to the 100% Qatar Central Bank (QCB) recommended level. However, this comes at a high price. Another development to help banks manage this ratio is the large inflow of foreign deposits seeking yield (many of which are from Asia), which now comprise many of the largest depositors. Term corporate customer deposits remain the main source of funding, but market funding is becoming a bigger source. Qatari banks have proven their ability to extend funding maturity through wholesale issuance and longer-term deposits. Liquidity remains adequate to anticipate funding maturities. Qatari banks maintain adequate capital ratios for their risk profiles despite strong loan growth. Banks are trying to maintain capital ratios, despite robust growth, typically through issuing additional Tier 1 capital. Lower margins are expected to remain the new norm. Asset-quality metrics will remain under pressure, particularly from difficulties in the contracting and real estate space. Fitch expects a mild increase in provisioning in anticipation of the implementation of IFRS 9 on 1 January 2018. Loan growth is expected to be high single digit in 2017 due to continued pressure on the operating environment from lower oil prices. However, government spending on strategic projects is expected to remain strong. Issuance in 2017 is expected to be stronger than in the past two years as banks look to extend their maturity profiles and lock in favourable rates, anticipating further Fed rate rises. Pressure on asset quality and profitability could be detrimental to already shrinking core capital levels. More information is available in 'Qatari Banks' Results Dashboard', available at www.fitchratings.com or by clicking the link above. Contact: Redmond Ramsdale Senior Director +971 1 424 1202 Fitch Ratings Limited Al Thuraya Tower 1 Office 1805 Dubai Media City Zeinab Abdalla Associate Director +971 4 424 1210 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com; Rose Connolly, London, Tel: +44 203 530 1741, Email: rose.connolly@fitchratings.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. 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