The loan-to-deposit ratio of Qatari banks has risen to record levels in February, indicating that liquidity pressures in the financial sector will lead to a slowdown in credit growth over the rest of the year.
The latest figures from the Qatar Central Bank (QCB) indicate that the system-wide loan-to-deposit ratio has risen to 119.8 per cent in February. It comes on the back of a 16.4 per cent year-on-year growth in credit to the private sector. Total domestic credit growth was up 30 per cent for the year to February, while the total volume of deposits rose by only 7 per cent.
Bankers in the country say that they are still dealing with a lot of requests for funding, but are expecting to have to become more conservative in granting loans as the year progresses. “While demand for credit is likely to remain positive, we expect banks to be vigilant of liquidity pressures and therefore expect more moderate credit growth in 2012,” says Fahad al-Turki, an economist at the UK’s Barclays in a research note.
Over the past year, credit growth has been overwhelmingly to the government and government-related entities. Credit growth to the public sector rose by 58 per cent over the past 12 months. Outside the government, the area seeing the most credit growth is the real estate sector, where credit growth was nearly 50 per cent over the past year.
QCB governor Sheikh Abdullah bin Saud al-Thani says he is unconcerned about the pace of credit growth to the real estate sector, but after a comprehensive bailout of the local banks property exposure in 2009, there are concerns in Qatar that banks are being too quick to build up their exposure to the sector again.
With the county soon to start development work in preparation for hosting the football World Cup in 2022, demands on the banks for providing loans for real estate schemes, contractor finance, and in some cases long-term project finance, is about to start ramping up.
Currently, the QCB has been trying to absorb the excess liquidity in the local banking system through issuing treasury bills. At an auction of QR4bn of treasury bills in early April, the QCB paid an average yield of 2 per cent, the highest rate being paid in the GCC.
The large auctions of local debt are also intended to help curb inflation and develop the local capital markets. The government is keen to see more firms using the debt markets as a funding tool, and is currently working on regulations that would allow private firms to sell bonds and trade them on the Qatar Exchange.