Qatar should consider more flexible forex rate: banker

Fitch Ratings expects the Qatari economy to continue to provide a strong operating environment for Qatari banks in 2013. Fitch expects Qatar’s GDP growth to be a healthy 7% for 2013 with the public sector driving credit growth related to the USD95bn of planned infrastructure spending between 2011 and 2016.
State support is the primary factor driving the banks’ Issuer Default Ratings (IDRs) reflecting the agency’s opinion that there is an extremely high probability of support from the Qatari authorities if needed, which has been clearly demonstrated in recent years.

Fitch expects Qatari banks to remain well capitalised. Most benefit from high Tier 1 ratios assisted by capital injections by the Qatari authorities. Large capital buffers provide capacity for loan growth and for absorbing unexpected losses.

Banks’ internal capital generation is somewhat limited due to typically high dividend pay-out ratios. Rapid growth and falling capital ratios could be negative for Qatari banks’ Viability Ratings (VRs).
Fitch expects healthy profitability and margins to continue in 2013. However, margins are increasingly being pressured due to the low interest rate environment and competition. Spreads for government-related lending may provide narrower margins than private sector lending, and banks are looking to higher-yielding business opportunities such as project-related contracting activities.

The primary concern for asset quality is rapid credit growth, although strong government-related borrowing and finances offset some concerns. Nevertheless, loan book concentrations increase event risk and are common.
Asset-quality ratios are among the best in the region and Fitch expects most to remain healthy in 2013 although some increased impairments have been offset by credit growth.

There appears to have been some asset quality deterioration as indicated by rising past due and restructured loans at some banks which may be a leading sign of potential future problems. A sharp deterioration in asset quality could pressure ratings.

Competition for deposits and use of wholesale funding are likely to rise as credit growth increases for infrastructure development. Fitch expects domestic deposits to remain the main funding source but foreign wholesale and deposit funding may also increase which could weaken funding profiles if not managed correctly.

© Gulf Times 2013, May 24,2013