Local banks expected to increase capital to prepare for contractor finance boom
Bankers in Qatar have raised concerns that the local banking sector could be unable to provide the huge volumes of contractor finance that will be needed to fund private sector firms working on government contracts.
Qatar is thought to have about $100bn of projects planned as part of its 2030 plan and the development is necessary to host the 2022 football World Cup.
Most of this will be funded directly by the government, but contractors working on projects will have to provide a variety of bonds to their clients, often in excess of 10 per cent of the value of the contract. “The problem is not that the government doesn’t have the finance, but is there capacity to provide all the contractor finance that will be needed,” says one banker in Qatar.
|Planned Qatar Projects|
|(Percentage of $120bn)|
|Design and study||83|
|Source: MEED Projects|
The majority of projects planned in Qatar will financed directly by the government, rather than through project finance structures, where a separate company is set up to operate and raise funding to develop a project.
The issue will become even more complicated as Qatari banks could be reluctant to finance foreign contractors that they do not have relationships with. “There is not enough liquidity for everyone so some of the foreign firms will have to bring their banks with them, although they will still need to have a Qatari bank involved,” says one structured finance banker at a Qatari bank.
Not all bankers in Qatar agree with the assessment though. “The capacity for local banks to provide contractor finance is significant,” says George Nasra, managing director of International Bank of Qatar (IBQ). He also points to plans for banks to increase their capital as a sign that capacity for financing contractors is still expanding.
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