Banks in Qatar are expected to face weakening profitability in 2016 as deposit growth slows down markedly and liquidity contracts in the gas-rich Gulf state.
The lower energy prices, which caused headwinds in 2015, are expected to result in a slowdown in lending, revenue and earnings growth for banks in Qatar, US ratings agency Standard & Poors (S&P) said in a report.
The drop in hydrocarbons prices, coupled with the Qatari governments efforts to streamline its public investment programme, are putting the brakes on domestic economic growth, although banks asset quality generally held steady in 2015.
However, credit losses in 2016 are expected to increase and pressure could mount in sectors where contractors are susceptible to losses amid slacker capital spending.
Importantly, we foresee some tension on banks asset quality, S&P credit analyst Nadim Amatouri said in the report. Over the past few years, public sector lending took a back seat, while a visible portion of new lending was in the private sector. We now anticipate increased credit losses in the private sector, particularly given our expectations for slowing real GDP growth.
Similar to the other five GCC states, S&P said Qatari banks could see losses on some high-net-worth portfolios on the back of a drop in the capital markets.
Liquidity in the banking sector is tightening further with the rise of local and global interest rates, and S&P expects credit growth will lose some steam.
The public sector withdrawal of funds from the banking system is expected to continue in 2016, and the ratings agency expects Qatari lenders to retain a higher portion of their profits by limiting dividends to meet regulatory capital requirements.