Qatar’s banking sector is in rude health, as evidenced by the Gulf emirate’s position as the regional leader in terms of bank lending growth. According to the Qatar Central Bank, overall bank credit rose to QR368.9bn as of end-November 2011, representing a 23.5% year-on-year increase.
The average rate of increase in the three months to end-November 2011 was an impressive 22.3%, while private sector credit growth in November reached QR227.85bn, up 22.3% year-on-year, and public sector credit rose by an astonishing 28.6% year-on-year to QR141bn. Particularly telling is the growing role of the national banking sector in funding public sector projects and other activities: according to Central Bank statistics, around 38% of overall bank credit is disbursed for these purposes.
Such activity is unlikely to dim in 2012. According to Dubai-based Rasmala Investment Bank, the Qatari banking sector is likely to grow at a rate of as much as 20% in 2012-14, with underlying returns on total capital of around the same level. The investment bank believes that the sector’s medium-term dynamics are solid, although it does warn that eventually there could be concerns regarding where capital will be deployed.
For now, however, the prospect of contracts being awarded for 2022 projects leads analysts to forecast broad-based growth for 2012. With tenders for World Cup 2022 projects nearing the award stage, the public sector is poised to begin disbursing funding and contracts, and is also likely to allow the private corporate sector to contribute more heavily towards loan growth.
According to Rasmala, the announcement in September 2011 that the government had raised public sector pay by 60%, and the salaries of defence personnel of officer rank by 120%, is likely to fuel retail sector growth, in turn providing headroom for future consumer credit expansion. These enormous rises have presumably been matched by banks in the Gulf state, as well as many other industries; banks will be paying their Qatari employees more, so costs in the sector will likely rise.
Nevertheless, while the oversupplied and over-priced property market had led to a dip in consumer lending, consumer lending portfolios are likely to continue their rebound in 2012.
Rasmala does warn that in 2012, a potential risk to banks in Qatar will be the new Islamic Banking regulations, which rocked the state’s financial sector when they were announced in January 2011.
The Central Bank ordered conventional banks to close their Islamic finance operations by end-2011, arguing that with the pending implementation of tailored Islamic banking regulations and capital adequacy regimes, commercial banks with both conventional and Islamic operations would struggle to follow the rules. The Islamic banking regulations, which were based on guidelines by the Malaysia-based Islamic Financial Services Board, an industry standards body, were formally introduced last year.
For the nation’s four Islamic banks — Qatar Islamic Bank, Qatar International Islamic Bank, Masraf Al-Rayan and Barwa Bank – it’s very much business as usual; their conventional peers, however, are having to learn to cope with life after shariah-compliant finance.
At the Qatar Exchange, meanwhile, 2012 ended on a bittersweet note. The bourse broke back into positive territory, ending with a 1.1% gain for the year, and maintaining its position as the best performing market in the GCC and Arab region for the second consecutive year.
It was the only market in the Arab region with positive price return, and the exchange’s year-end market capitalization of more than QR457bn represented an increase of almost 1.6% from end-2010. In a year which saw the exchange extend its opening hours and implement a Delivery Versus Payment model to speed up settlement times, the bourse also saw the launch of its first new brokerages since 2006, and listed short-term T-bills.
However, it lost out on the big prize: along with the UAE, Qatar was denied a much-anticipated boost when index manager MSCI declined to upgrade the Qatar Financial Centre (QFC) from ‘frontier’ to ’emerging market’ status.
According to MSCI the country’s strict foreign ownership limits, and the limited availability of shares to foreign investors, have made shares in large companies almost unobtainable for international investors.
“Large companies, such as Industries Qatar, have almost reached their foreign ownership limit and became quasi-uninvestable for foreign investors,” MSCI said in its report. “Under current conditions, the MSCI Qatar Index would not qualify for Emerging Markets on this criterion.”
The Qatari government will console itself with the knowledge that the Gulf’s landmark sovereign debt issue in 2012 belonged to its tri-tranche conventional Euro-bond in November. The US$5bn placement, which was broken into tenors of five, ten, and 30 years with yields of 3.12%, 4.5%, and 5.75%, respectively, was heavily oversubscribed and served to highlight Qatar’s attractiveness to investors.
The ratings agencies are on board – Qatar has an AA rating from S&P and Aa2 from Moody’s – and the bond, the country’s first since November 2009, should provide Qatar’s $10.3bn Barzan natural-gas field project, the most expensive energy project in the Gulf since 2006.
The Qatari government’s total infrastructure spending over the coming five years is estimated at US$150bn, and it’s this investment which will underpin much of the economic growth the country will enjoy over the period.
Just last month, energy minister Mohammed Al-Sada confirmed the country planned to more than double its annual petrochemical production capacity from 9.2 million tonnes now to 23 million tonnes by 2020, spending $25bn in the process. Already the world’s largest Liquefied Natural Gas exporter, Qatar has imposed a moratorium on further export development of its huge North Field until 2014; in the meantime, the state is pumping money into other projects such as a US$6.4bn petrochemicals complex at Ras Laffan industrial city, with Royal Dutch Shell.
While the race for World Cup 2022 is still a long way away for the world’s footballers, for the global investment community, not to mention the burgeoning Qatari business sector, the big kick-off is much closer.