Qatar’s banking sector is set for a period of expansion at home and abroad but asset quality risks remain
Qatar’s rise to international prominence has to date been driven by the state’s diplomatic efforts and global dealmaking. Following behind it are the Qatari banks, awash with government deposits and seeking growth opportunities.
Qatar National Bank (QNB), the state-controlled dominating force in the local market, is now the largest bank in the region by assets. It is pursuing acquisitions elsewhere to diversify its income and emerge as a regional banking brand, rather than just a Qatari one.
Most other banks are also looking for acquisitions or partnerships with other lenders around the region, particularly as QNB has a stranglehold on about 50 per cent of the domestic market. The challenge will be how to cope with the pressures exerted on management as a result of such rapid expansion.
At the moment, Qatar’s banks have a less active domestic market to worry about, and with the state dominating credit growth and showing itself to be happy to comprehensively bailout the banking sector between 2009-11, concerns about asset quality are limited. But as the local market picks up, which it should start to do in 2013, the pressures on banks will be immense.
Since the financial crisis, the state has overwhelmingly dominated the local banking sector. The public sector’s share of total loans has grown from 22 per cent in 2007 to 42 per cent in August 2012. High liquidity and high exposure to low-risk assets has compressed lending margins. As activity in Qatar picks up, margins should start to lift too. Coupled with regional expansions, banks should become more profitable and more diversified. But the possibility of losing focus on asset quality, or making strategic errors, will be high.