According to the agency, the risks resulting from large external debts remain high with the possibility that they will increase further, and despite this, the Qatari government will maintain its very supportive position for its banking system..
The report stated that credit growth in Qatar is closely linked to oil and gas prices and capital spending projects – planned – for the public sector, and due to the low oil prices, the Qatari government has postponed some of its projects that it was intending to implement, and many of its infrastructure projects are nearing completion.
The agency expects credit growth to decline from 11% (the average for the period between 2017-2019) to 7% (for the period between 2020-2022), but the development of new gas fields could provide banks with some additional opportunities for lending..
Standard & Poor’s revealed that collecting foreign deposits has been one of the main sources of financing for achieving domestic credit growth in the past few years, and domestic deposits have remained relatively stable.
The Agency considers reliance on external funding as a source of risk. Given the high geopolitical risks in the region, and although non-resident deposits maintained relative stability during 2020, external debt continued to rise through debt securities, transfers between banks and loans from head offices.
And it expected real GDP growth to drop by about 5% in the year 2020 before recovering in 2021, with the possibility of increasing risks, and the quality of assets will decline, but government and related entities have a large presence in the loan books, which may mitigate to some extent the extent of the decline in Asset quality.
It is likely that small and medium-sized companies, especially in the hospitality and real estate sectors, will contribute to an increase in the volume of non-performing loans. It also expects the troubled assets of Qatari banks to rise to 3.7% by the year 2021, but this figure is likely to mask the difference between banks that have access to borrowers. Those with high credit quality with strategic importance and those without this potential.
The agency stated that external financing will likely remain high, and that non-resident deposits in Qatar have maintained relative stability during the year 2020, but external debts have begun to rise, and that the proportion of local loans financed by local clients may fall below 60.%.
The agency noted that a second wave of the pandemic and the re-imposition of restrictions could permanently restrict demand and expose banks exposed to the most affected sectors – real estate and hospitality – to several pressures.
The agency said that if the flight of non-resident deposits was not regulated, funding pressures could develop rapidly and require official support, such as those provided by the government earlier, and in the event of a rise in foreign liabilities in light of the decline in uncertainty, banks may be subject to greater pressure.