Private sector lending in Qatar picks up speed

01 July 2014

Lending growth forecast to remain about 10-15 per cent a year

The growth of private sector lending by Qatar’s commercial banks is outstripping public sector lending, according to the latest data from the Central Bank of Qatar.

In May, private sector credit hit QR309.8bn ($84.9bn), an increase of 16 per cent on May 2013.  Public sector lending grew in comparison by just 2.5 per cent to reach QR237.9bn, compared with the previous May.

The level of growth in May is in line with trends set in the preceding months, with private sector loans increasing month-by-month, whereas public sector lending started to decline from March.

Between November 2013 and February this year, private sector lending grew by 3-4 per cent month-on-month, although it has slowed in more recent months.  

Public sector lending still accounts for a large chunk of overall lending, representing about 43 per cent of total domestic credit facilities distributed by the banking sector.

Yet the growth in private sector lending is a sign that banks are diversifying their streams of revenue away from government and government-related entities.

This is a development that will be welcomed by some analysts, who are keen to see banks limit their concentration risks on government debt. The Qatari banks’ portfolio is also heavily concentrated on large borrowers. According to a May report from US credit ratings agency Standard & Poor’s (S&P), the top 20 loans represented 45 per cent of total loans at the end of 2013.

However, the extent of the benefits derived from diversifying lending will depend on where banks are refocusing their exposures.  

Increasing lending to riskier sectors such as real estate may not be a positive development. Exposure to real estate loans remains a significant proportion of the Qatari banks’ portfolio, representing 14.5 per cent of the sector’s total credit facilities as of May this year.

Banks are also increasing their lending to entities outside Qatar, often in riskier geographies, with lending rising by 35.9 per cent to QR51.7bn.

But despite these risks, most analysts see Qatari banks well-positioned for future growth. In general, lenders are posting strong profit growth, with Barwa Bank being the most recent institution to post positive results for the first quarter of this year, with a 28 per cent rise in net profits.

S&P currently estimates lending will continue to increase by about 10-15 per cent a year, and forecasts that the sector’s profitability will remain strong for the next 12 months.

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