Despite the global financial crisis, Qatar's economy continues to perform strongly with the 2010 forecast for real gross domestic product (GDP) growth of 18.5% expected to further boost an already well-capitalised and profitable banking sector. Unlike other Gulf Co-operation Council (GCC) states, Qatar's banks have been largely unaffected by global financial concerns or regional issues such as the Dubai restructuring and the dispute between the two Saudi conglomerates, the Saad Group and Ahmad Hamad Algosaibi and Brothers.
As such, the outlook for Qatar's banking system was recently described as stable by rating agency Moody's, based on the country's continuing macroeconomic growth. "For 2010, Moody's expects Qatari banks' pre-provision profitability to remain at good levels and to be supported by higher business volumes and a low-cost base," said Elena Panayiotou, lead analyst for Qatari banks in Moody's Limassol office.
Solid reputation
While there are concerns over provisioning, the rating agency believes the current ratings of Qatari banks are supported by continued high levels of pre-provision profits, strong capital levels and a high loss-absorption capacity. And the recent International Monetary Fund (IMF) Article IV consultation with Qatar also backed the Qatari banks, noting: "Non-performing loans [NPLs] are among the lowest in the GCC [2% at end-September 2009], reflecting both prudent regulation and government support to banks in the course of the year."
For Qatar's 18 national and foreign banks, which include 14 conventional and four Islamic banks, 2009 was another good year, with the sector indisputably the fastest growing in the GCC.
The compound annual growth rate on assets reached 39% between 2004 and 2009, and is still growing by a healthy 17.1% in 2009, despite difficult circumstances.
Analysts attribute the vibrant growth to strong fundamentals supported by a proactive government. During 2009, the Qatar government made a significant pre-emptive intervention in the banking sector, amounting to about $6.5bn, which had the effect of increasing liquidity, decreasing risk-weighted assets and providing a greater capital cushion against credit and market risks. As the IMF explains: "Official intervention in 2009 reached about 6.5% of GDP, mainly in the form of: a) capital injections in banks by the Qatar Investment Authority at 5% of their enhanced share capital (about $1bn); b) purchase of the equity investment portfolio of banks (up to $2bn) by the government; and c) purchase of the real estate portfolio of banks (up to $4bn) by the government in the context of falling real estate prices."
The government's intervention clearly signalled its commitment to support the banking system and maintain stability and it clearly had the desired effect. The equity injections not only gave the banks room to lend but, according to IMF estimates, improved the combined capital adequacy ratio for the eight major listed banks from 16.5% to 18.5% after the intervention. The authorities also indicated that the exposures of Qatari banks to Dubai World (and its restructuring) are insignificant and manageable and would not cause any serious impact on banks' capital.
As the key indicators table (below) clearly demonstrates, the banking aggregates in 2009 showed continued strong growth, although significantly less than in 2008. Overall assets grew by 17.1% to QR129bn ($35.5bn) while total shareholders' equity expanded by 18% to QR17.3bn. But while aggregate deposits were up 16.1%, loans up 11.4% and credit up 11.5%, profits after tax only grew 2.8% to QR3bn, down from 28.4% growth in 2008. Nevertheless, the aggregate return on equity reached a very acceptable 17.8%, slightly down on the 19% return achieved in the previous two years.
Qatar banking sector - Key indicators ($m)
Qatar National Bank
Examining the sector, Qatar National Bank, 50% owned by the Qatar government, remains the dominant force in the industry, the largest bank in the country by some distance and the third largest bank in the Middle East and north Africa (MENA) region in terms of profitability. Net profits in 2009 reached $1.15bn again third behind Saudi Arabia's Al Rajhi Bank and Samba, and 15% up on 2008. Over the past five years, QNB has managed to achieve outstanding cumulative average annual growth rates of 38.6% in profits and 35.4% in total assets, figures unmatched in the region and among the best in the world.
QNB dominates the domestic market, with 45.4% of total assets, 46.6% of loans and 57% of customer deposits at the end of March 2010. It also has the largest domestic network, with 41 branches, three mobile branches, 11 Islamic branches and more than 160 ATMs.
Ali Shareef Al-Emadi, QNB Group CEO, is bullish about his bank's prospects given the country's forecast high growth and he also sees strong expansion in the region and in Islamic banking. Mr Al-Emadi explains that QNB has increased its operations to 22 countries and earns 17% of its profits from outside Qatar. "Our operation is regional and we continue to follow the Qatar economy." The bank has recently opened QNB-Syria and QNB-Switzerland, and hopes to further expand in the MENA region in the coming years.
On 26 April, QNB-Syria was listed on the Syrian Stock Exchange and Mr Al-Emadi hopes to increase QNB's stake from its present 49% to 60% and raise capital from $100m to $300m while raising the Syrian network to 15 branches this year. With its Islamic offering, QNB Al Islami, the bank has a market share of 19.2% of total Islamic banking assets and Mr Al-Emadi hopes to expand the number of Islamic branches from 11 to 17 this year.
QNB has continued its strong performance into 2010 and at the end of March posted a strong capital adequacy ratio of 12.9%, a low level of NPLs, with an NPL ratio of 0.7%, and a high return on average equity of 25.6%. These results make it not only one of the highest performers but also give it the highest credit rating among regional banks.
Commercial bank of Qatar
Qatar's second largest bank, Commercial Bank of Qatar (CBQ), had a 13.7% market share of assets at end-March 2010, and a similar share of deposits at end-2009. It also has 29 branches including six Islamic ones.
The 86% privately owned bank has strong domestic corporate and retail franchises and holds a 35% stake in National Bank of Oman, along with a 40% stake in the United Arab Emirates' United Arab Bank. Net profits in the first quarter of 2010 reached a credible QR410.1m.
Banks - major indicators and market share, March 2010 (QRm)
Doha bank
Doha Bank, Qatar's third largest, continues to grow rapidly, with 35 domestic branches, including five Islamic branches, and a broad international network. Under its group chief executive, R Seetharaman, Doha Bank has achieved solid growth over the past three years, with assets growing 18% in 2009 to reach $12.6bn and net profits up 2.6% in 2009 to $267m. In the first quarter of 2010, net profits reached $86.5m and an impressive 25% return on equity.
Overall, the Qatar banks provided total profits of $2.96bn in 2009, a 2.8% increase on 2008 but much better than the performances of banks in most countries. But some concerns exist despite the forecast of high growth rates and the estimated $248bn-worth of ongoing and planned projects in Qatar. According to a recent report by Dubai's Shuaa Capital; "Given a population limited to an estimated 1.2 million inhabitants in 2009, of which close to 75% are expatriates, and a relatively high banking penetration rate (one branch for about 5940 people) the local market can be considered saturated when it comes to retail banking (this branch ratio compares to one branch to 7715 people in the UAE and one 17,431 in Saudi Arabia)."
While public and private wholesale banking will remain the main growth driver, George Nasra, managing director of International Bank of Qatar (which is 30% owned by National Bank of Kuwait), believes Qatar is overbanked and there is overcapacity in the system that is ripe for consolidation. While rumours of mergers exist, consolidation among banks in Qatar and the region is always difficult no matter how rational such a strategy might be.
Meanwhile, a new fully sharia-compliant investment bank, Qatar First Investment Bank (QFIB), was launched in March 2009 and its chief executive, Mike de Graffenried, is optimistic about the opportunities in the investment arena. With a paid-up capital of $430m, QFIB recently acquired 71.3% of Emirates National Factory for Plastic Industries and closed its first year with a $700,000 profit.
While deal-making is never easy, Qatar's banks look set to take advantage of the huge opportunities available to them.
