Qatars banking sector is ready to support the anticipated growth in infrastructure projects expected to hit the market in the coming years.
At the end of March, Qatars Finance Ministry announced sharp hikes in spending within its 2014/15 budget as the country races to meet its World Cup 2022 and its 2030 Vision growth strategy deadlines.
Government spending will increase by 3.7 per cent to QR218.4bn ($59.98bn) in the forthcoming fiscal year, with much of it being ploughed into infrastructure developments such as the World Cup stadiums, airport and road projects.
Yet, the volume of anticipated projects will not solely be reliant on government funding, with both Qatari, regional and international banks playing a role in funding projects. The infrastructure boom will also open up opportunities for banks to provide a range of products across the supply chain from capex finance, contractor finance or export credit agency-backed financing to be used by Qatari companies to procure goods and services internationally.
With more contract awards expected to be made on major projects this year, the need for finance will become increasingly apparent.
The countrys banking sector is primed to meet the rising demand for infrastructure-related finance, with lending activity has already started to pick up.
According to data from Qatars Central Bank, total domestic credit extended by commercial banks in 2013 reached QR533bn, while private-sector credit reached QR293.3bn by the end of the fourth quarter in 2014.
This is an increase of 41.5 per cent and 29 per cent respectively on 2011 figures for domestic and private credit.
Qatari banks are also proving to be highly profitable. QNB is one of the largest banks by capitalisation in the region. Its 2013 profits hit QR95.5bn ($26.2bn), a 13.7 per cent increase on the previous year. The banks asset quality has also improved and the bank has maintained a low non-performing loan (NPL) ratio.
Doha Bank also posted a slight increase in profits for 2013, posting a net profit of QR1.31bn. The banks lending appetite grew, with loan volumes rising by 5.5 per cent in the final quarter of 2013 compared with the fourth quarter in 2012.
The countrys strengthening banking sector has not yet shown signs of over-extending itself. Deposit growth has been strong and in line with loan growth, though some analysts fear that lending could exceed new deposits as the infrastructure-led boom kicks in.
Banks could also face concentration risks with an anticipated increase in exposure to infrastructure projects. This exposure could be heightened if the Qatar Central Bank goes ahead with plans to cap local banks lending activities to foreign companies as a way of encouraging them to increase their lending to domestic projects, as reported in MEED in late March.
Increasing competition between banks to win deals could push pricing to low and potentially unprofitable levels.
But based on current data, Qatar banks are in a financially strong position to capitalise on the countrys infrastructure deal pipeline.