Qatar credit growth outpaces region

18 July 2011

Credit growth at 15 per cent is far above the rest of the region

Private sector credit growth in Qatar rose 15 per cent in May, far outpacing the pace of credit growth in much of the rest of the region.

The latest figures show that private sector credit growth in Saudi Arabia in May was only 7.1 per cent, while in the UAE lending actually shrank by 0.5 per cent in May. Both countries have suffered from a risk averse banking sector after booking huge provisions from bad loans.

In contrast, Qatar’s banks are more comfortable with growing their loan book because of the country’s high gross domestic product (GDP) growth rate, which is expected to be 20 per cent according to the Washington-headquartered IMF. They have also benefited from high growth in deposit rates, which has left the loan-to-deposit ratio for the banking sector down at 95 per cent, giving the banks ample room to continue lending. It is a significant improvement on last year, when the loan-to-deposit ratio was at 106 per cent.

For most of the year, deposits in the banking system have been growing by above 20 per cent a month. In May, deposits in the Qatari banking system rose by 25.8 per cent to QR309bn ($85bn).

“Banks in Qatar are very confident,” says one investment banker in Doha. “There is a huge amount of opportunity here because of the development needed for the World Cup, and because the other development projects that are already happening.”

Although credit growth is heading strongly upwards, it fell slightly in May compared to the previous month, when private sector credit growth was 15.5 per cent.

The figures also indicate that Qatari banks are much more interested in increasing their real-estate exposure than regional peers. Credit to the real-estate sector rose by 53 per cent in May, compared to May 2010, and even that has accelerated since last month when real estate credit rose 48 per cent.

Attention is also shifting more to the private sector, away from the public sector. Public sector loan growth has fallen to just 0.8 per cent in May, down from over 40 per cent as recently as January.

Part of this is because the Qatari banks received a much more comprehensive package of state bailouts than the rest of the region. The government bought up the bank’s real-estate exposure, equity market exposure and invested directly in the bank’s shares to shore up their finances. In 2009, the government spent QR6.5bn on the equity investment portfolio of the banks and QR14.5bn on their real-estate portfolios to protect the banks from having to account for their fall in value.

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