Banks in Qatar are struggling to deploy their excess liquidity, leading to a fall in interest rates charged to lenders and a ramp up in public sector lending.
The latest figures from the Qatar Central Bank show that loan growth in Qatar was 34 per cent in September, with the public sector increasingly driving new loans. Credit growth to the government was 85 per cent year-on-year in September, compared with private sector growth of just 16 per cent.
“Banks are very liquid and liquidity is still rising,” says the head of one local bank. That liquidity is increasingly driving down the interest rate charged to borrowers as competition to book new assets intensifies.
Asset growth in the Qatari banking sector has been among the fastest in the region in the past year. In the year to September, asset growth was 22 per cent. In contrast, deposits have been growing more slowly, rising 18 per cent in the same period. “The market is limited and there is too much liquidity,” says one banker.
That is expected to change once the government starts to make more progress on the infrastructure investment programme it has committed to in preparation for hosting the football World Cup in 2022 and in the National Development Strategy. “There is ample liquidity at the moment, but once the big infrastructure projects start to happen that will quickly dry up,” says the head of one international bank in the country.
Estimates put the government’s expenditure plans anywhere between $150bn-220bn. Once the government does start tendering projects, credit to the public sector could expand still further. Already government loans make up 43 per cent of bank’s loan books, up from 31 per cent a year ago. In the year to August, retail loans declined by 18 per cent, although this is thought to be driven by caps on retail lending imposed by the central bank in April 2011.
Provisions have remained at around 2 per cent of total loans compared to a year ago, in a sign that the new retail lending regulations, along with the creation of a credit bureau, are helping to ensure that asset quality does not slip. The central bank has also announced plans to create a ratings agency for domestic non-government issuers. It hopes this will help ensure that as it takes steps to develop the debt capital markets, debt issuers are transparent and forthcoming with financial information.