Low oil prices could have hit Qatar's economy hard, but early action from the government appears to have shielded it from the worst of the impact. The country's central bank governor, Sheikh Abdulla Bin Saoud Al-Thani, tells Kit Gillet about how these changes and future plans will protect and strengthen the country's banking sector.
Overseeing the banking sector from his position as governor of the Qatar Central Bank (QCB), Sheikh Abdulla Bin Saoud Al-Thani has an important role to play in helping further develop the Qatari economy, as well as in dealing with the current challenges of huge infrastructure financing and economic issues caused by low oil prices around the world.
“Low global hydrocarbon prices have posed many challenges to oil-exporting countries, including Qatar, and the global economy,” says Mr Al-Thani. “Oil-exporting countries have witnessed a decline in hydrocarbon exports, a deterioration in fiscal conditions, a tightening of domestic liquidity and an overall growth slowdown.
“Against this backdrop, low oil prices also have offered many opportunities, especially in oil-exporting countries, to further the economic diversification strategies to achieve sustainable growth.”
Forward thinking
While Mr Al-Thani does not hide from the fact that Qatar has been affected by the low oil prices, he maintains that the country initiated economic diversification much earlier as part of its National Development Strategy 2011-16, aimed at meeting the goals of the Qatar National Vision 2030 initiative, and “as a result, Qatar has been relatively less impacted from low global hydrocarbon prices”.
The Qatari economy is currently witnessing a structural change, as its shift in dependency away from the hydrocarbon sector builds momentum, and banks are playing a role in this. “Higher credit demand, particularly from industry and services sectors such as education and health, is expected to provide the required impetus for healthy asset growth for the banking sector,” says Mr Al-Thani.
Increased activity in the infrastructure sector, as well as the population growth that is accompanying it, should also lead to credit demand from banks to the consumption and real estate sectors.
To aid the banking sector and the Qatari economy as a whole, the central bank has in recent years been pushing the development of institutional frameworks to support the sector, as well as to mitigate risk in the system. The QCB has institutionalised the Qatar Credit Bureau, which is creating credit histories of borrowers to help banks mitigate counterparty risk and promote a fair lending policy. It has also set up the Qatar Central Securities Depository in order to develop the infrastructure for capital markets and provide depository and allied services for risk minimisation.
According to Mr Al-Thani, QCB is also currently implementing a framework for counter-cyclical capital buffer, which aims to ensure that the banking sector has a sufficient capital buffer to protect against future losses, taking account of the macro financial environment. QCB has not yet prescribed any requirements for this buffer, he adds.
Banks had already been advised to maintain a liquidity coverage ratio with a minimum of 60% by the end of 2014, which will increase 10 percentage points every year to reach 100% by end 2018. “On similar lines, banks are required to maintain net stable funding ratio with a minimum of 70% by end of 2015 and to achieve 100% by 2018,” adds Mr Al-Thani.
Good outlook
Qatar's net stable funding ratio, which seeks to evaluate the position for a horizon of one year, was implemented in the first quarter of 2015. The QCB also implemented the framework for domestic systemically important banks in July 2014, which includes enhanced capital planning requirements and recovery planning.
For the banks themselves, Mr Al-Thani says that domestic banks should “improve their risk assessment and its mitigation tools to ensure that the delinquency rate is in check”. Nevertheless, he adds, Basel III guidelines on capital and liquidity standards as well as other prudential guidelines are in place to enable banks to remain resilient.
The QCB has been actively managing liquidity by downsizing its treasury bills auctions, as well as allowing the maturity of earlier issued treasury bonds to ensure comfortable liquidity in the system and stability of money market rates. As a result, the banking system as a whole in Qatar continues to record a primary surplus, reflected in the net Qatar monetary rates deposits and excess reserves with the QCB of more than QR4bn ($1.1bn) at the end of April 2016. “Thus, liquidity is unlikely to become a major issue for banks in Qatar,” says Mr Al-Thani.
At the end of April, the outstanding amount of treasury bills was QR5.5bn, while conventional bonds were at QR65.8bn and sukuk QR31.5bn. Notwithstanding this, the stock of these bills and bonds continues to be significant and should help banks manage their liquidity.
Overall, Mr Al-Thani remains optimistic about the economic situation in Qatar. “Growth is expected to improve in 2016, with robust non-hydrocarbon growth continuing and hydrocarbon output getting a boost from Barzan gas production coming on stream in 2016,” he says.
