Qatar’s successful economic diversification program has become clearly visible in recent years. The program includes the development of the Qatargas and RasGas projects to produce and export natural gas in the form of liquefied natural gas (LNG), piped gas, gas-to-liquids (GTL) and investments in the petrochemicals and fertiliser industries. As a result, Qatar’s GDP growth remains strong, averaging 14.7% over the past five years. According to preliminary figures published by the Planning Council, Qatar’s nominal GDP grew by an estimated 8.8% in 2003 to reach QR70.8bn ($19.4bn), compared to QR65.1bn in 2002 (see table 1). In 2003, the oil and gas sector recorded a 12.9% growth, while the non-oil sector grew by an estimated 3.2%.
Qatar National Bank (QNB) is of the opinion that when the Planning Council releases revised 2003 figures, it will show a higher overall growth of about 10.5%. For 2004, QNB forecasts a nominal GDP growth of 7.5%, as oil prices are likely to remain high and LNG exports continue to grow.
Qatar’s rapid economic growth has enabled it to emerge as one of the richest countries in the world in terms of GDP per capita. In 2000, GDP per capita reached $28,600; in 2003 it stood at $26,224.
Budget boosters
The emirate’s state finances have been bolstered by budget surpluses achieved in each of the past four fiscal years, amounting to an estimated total of QR18.4bn. The recently announced 2004/2005 state budget shows another fiscal year of expansion, with a 44.3% increase in allocations for major public projects. Total allocations for major public projects reached QR8.8bn in 2004/2005, compared with QR6.1bn in the 2003/2004 budget.
The 2004/2005 budget estimates total revenues at QR26.2bn and total expenditures at QR28.4bn, resulting in an overall deficit of QR 2.2bn (see table 2). Total revenues increased by 21.6% over the preceding budget, while total expenditures increased by 16.4%. The 2004/2005 state budget is based on a conservative oil price assumption of $19 per barrel, compared to a $17 per barrel assumption in the previous budget.
QNB estimates the 2003/2004 budget to produce a surplus of more than QR 5bn, based on an average oil production of 710,000 barrels a day during the fiscal year and LNG exports of 14.4m tonnes.
Positive outlook
On June 21, 2004, credit ratings agency Standard and Poor’s (S&P) revised the outlook for the state of Qatar to positive from stable. S&P mentioned that the revision primarily reflected the country’s very strong economic prospects – driven largely by the gas industry – combined with continued fiscal prudence and the ongoing reforms in domestic political institutions. On July 15, 2003, S&P had raised both the long-term foreign currency sovereign and the long-term local currency sovereign credit ratings for the State of Qatar to A+, from A- and A respectively.
Moody’s Investors Service, meanwhile, has currently assigned Qatar a long-term sovereign rating of A3, while Capital Intelligence has given a long-term sovereign ceiling of A-.
Sector structure
The Qatari Banking sector has a combination of both local and foreign banks. There are currently 15 banks, eight of which are Qatari-owned, including five commercial banks (Al Ahli Bank, Commercialbank, Doha Bank, Grindlays Qatar Bank, and Qatar National Bank), two Islamic banks (Qatar Islamic Bank and Qatar International Islamic Bank), and the specialised Qatar Industrial Development Bank. In addition, seven foreign banks (Arab Bank, Bank Saderat Iran, HSBC, Mashreqbank, BNP Paribas, Standard Chartered, and United Bank) are represented in Qatar.
The first half of 2004 has seen major developments in the Qatari banking sector, with the entry of two foreign financial institutions, which have taken up stakes and management control in two local banks. The first was Ahli United Bank of Bahrain, which took a 40% stake in Al Ahli Bank of Qatar, while the second was National Bank of Kuwait, which took a 20% stake in Grindlays Qatar Bank.
The 2003 results for the Qatari banking sector continued to show another year of promise, with net profits increasing by 27.5% to QR1.6bn (see table 3). Total assets increased by 18.0% to QR74.2bn, customer deposits rose by 12.4% to QR55.3bn, and loans and advances went up by 20.5% to QR44bn. Shareholders’ equity grew by 23.5% to QR10.6bn. Other key performance ratios indicated a return on average assets of 2.4%, return on average equity of 17.08% and loans and advances to customer deposits of 79.7%.
QNB’s role
QNB is the largest bank in Qatar, and has the widest distribution network in the country, with 32 branches and 68 ATMs at strategic points across the country. It also has international branches in London and Paris.
For the first quarter of 2004, QNB achieved a 21.5% increase in net profits to QR190.4m, compared to QR156.7m in the first quarter of 2003. As of March 31, total assets reached QR35.2bn, while total shareholders’ equity amounted to QR5.5bn.
QNB is also the highest rated bank in Qatar, with a long-term bank deposit rating of A3 from Moody’s and a D+ financial strength rating. In December 2003, Moody’s raised the outlook for QNB’s D+ financial strength rating from stable to positive, in recognition of the bank’s good financial fundamentals and the improving operating conditions in Qatar.
In early July, the bank concluded an agreement to buy London-based financial services specialist the Ansbacher Group. The purchase of Ansbacher from South Africa’s First Rand Holdings is subject to regulatory approval for the change of control in the multiple jurisdictions where Ansbacher has operations and this is expected to take up to three months.
QNB says the transaction fits its long-term strategic objectives to grow private banking operations. More specifically, the acquisition will enable QNB, which has branch operations in London and Paris, to expand its presence and product offerings, particularly in the area of wealth management. Ansbacher’s established franchise in the high net-worth market, its product offerings, client relationship management skills and strongly regulated operations should provide QNB with the means to achieve these expansion objectives.
Under the deal, QNB will acquire all the issued shares in the Ansbacher Group at a premium of up to Ł15m to the net asset value of the business. The purchase consideration will be settled as follows: an initial consideration which will be based on the net asset value of the Ansbacher group at the completion date plus a premium of Ł7.5m. The total proceeds from the transaction, including the repayment of First Rand subordinated debt capital in the Ansbacher Group, but excluding London property profit share, is estimated to be Ł135m.
The Ansbacher Group operates from the UK, the Channel Islands, the Cayman Islands, the Bahamas and Switzerland.
Mohamad Moabi is chief economist at Qatar National Bank
