Qatari banks improved liquidity and profitability in first half: Fitch

DOHA:  The funding and liquidity was no longer the key risk to Qatari banks in first half of 2019. Profitability metrics showed a small improvement due to better cost efficiency and lower impairment charges, Fitch Ratings said in a new report yesterday.

The ratings agency noted that for 2019, asset quality metrics will remain under pressure, particularly in the real estate sector, and it expects higher loan impairment charges and continued loan restructuring. Fitch Ratings expects loan growth to be in the low single digits but it could come under pressure if private sector activity is not sufficient to offset reduced government spending.

Asset quality deteriorated in 1H19 with pressure in real estate as oversupply has reduced property prices and rentals, and increased payment delays in contracting. The average impaired loans ratio dropped slightly in 1H19 but is around the highest point since the global financial crisis although it excludes increasing volumes of restructured loans. Loan impairment charges/gross loans decreased as loan-loss allowances have already been built up. Loan-loss allowances are adequate as a proportion of impaired loans (around 130 percent) but low as a percentage of gross loans (around 3 percent).

Operating profit/risk-weighted assets improved in 1H19 due to better cost efficiency and lower loan impairment charges. The average net interest margin was roughly in line with that of 2018. Liquidity pressures continued to ease in 1H19 due to negative loan growth and a flat deposit base. The average gross loans/deposits ratio at end-1H19 was at its lowest point for four years at 105 percent.

Competition for current accounts and savings accounts remains fierce. Foreign funding remains high, constituting a risk to the banking sector, but we believe that government support would be available if needed. Deposits are mostly in local currency (55 percent) and domestic (76 percent). They account for nearly 80 percent of total funding but are mainly wholesale and highly concentrated. Liquidity remains adequate to meet funding maturities.

Qatari banks’ capital ratios remain adequate for the banks’ risk profiles. The equity/assets ratio is lower than in most other GCC countries but regulatory capital ratios are on the high side, reflecting lower risk weightings due to a higher proportion of government lending. Basel III capital requirements are now fully phased in with a minimum regulatory total capital adequacy ratio of 12.5 percent, as well as D-SIB and ICAAP Pillar II add-ons.

Source from: The Peninsula