Report Highlights Qatari Banks' Expected Robust

Profitability In 2014 Despite Risks
Primary Credit Analyst:
Mohamed Damak, Paris 33144207320; mohamed.damak@standardandpoors.com
Secondary Credit Analysts:
Stephanie Mery, Paris (33) 1-4420-7344; stephanie.mery@standardandpoors.com
Timucin Engin, Dubai (971) 4-372-7150; timucin.engin@standardandpoors.com
OVERVIEW
• Qatari banks are well positioned to continue to deliver robust
profitability by Gulf state standards.
• The expected normalization of U.S. monetary policy may cause Qatari
banks' interest margins to contract.
• The risks that the banks face include concentration of their loan
portfolios, their appetite for geographic expansion in riskier countries,
and the domestic economy's high dependence on the oil and gas sectors.
PARIS (Standard & Poor's) May 7, 2014--Standard & Poor's Ratings Services
considers that Qatari banks' profitability will likely remain strong over the
next 12 months in its report published today "Risks Are Unlikely To Dent
Qatari Banks' Expected Robust Profitability In 2014."
We foresee robust profitability for Qatari banks in 2014 following their
outperformance versus peers in the Gulf Cooperation Council countries (GCC;
Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates) over the
past five years.
"High interest margins, although contracting; briskly increasing business
volumes mainly on the back of the government's investments; and banks'
generally low cost bases are the main factors fueling this performance," said
Standard & Poor's credit analyst Mohamed Damak.
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In this largely favorable environment, and given the solid economic growth we
forecast in Qatar over the next few years, we think lending will continue to
increase by about 10%-15% per year.
The banking industry faces several risks, however. The normalization of
interest rates in the U.S. within the next two years could be the most
immediate damper on banks' profitability, in our opinion. A steep increase in
U.S. interest rates could squeeze Qatari banks' interest margins because of
the structural mismatch of their balance sheets, which carry long-term assets
and short-term deposits. On the upside, we think that the U.S. Federal
Reserve's monetary policy normalization will be gradual, allowing Qatari banks
the necessary time to adjust their pricing.
Mirroring the small size of the economy, high single name and real estate
sector concentration exposes Qatari banks to the tail risk of default of top
names or to setbacks in the real estate sector. During the 2009 real estate
correction, though, the government shielded the banking system by providing
significant and timely support. In addition, banks' increasing appetite for
geographic expansion in riskier countries could weigh on their financial
profiles and performance.
Lastly, the heavy reliance of the Qatari economy and government accounts on
the large oil and gas sector exposes the country to a sudden and persistent
drop in oil and gas prices. Under such a scenario, the banking system could
suffer through its exposures to large investment projects or to the expatriate
retail segment. That said, we do not currently expect such a fall to occur
within the next 24 months. For 2014 and 2015, we assume oil prices will remain
above $95 per barrel.
RELATED CRITERIA AND RESEARCH
Related Criteria
• Banks: Rating Methodology And Assumptions, Nov. 9, 2011
• Banking Industry Country Risk Assessment Methodology And Assumptions,
Nov. 9, 2011
Related Research
• Banking Industry Country Risk Assessment: Qatar, May 7, 2014
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Credit Rating Action (including a Credit Rating change, affirmation or
withdrawal, Rating Outlook change, or CreditWatch action). This commentary and
its subject matter have not been the subject of Rating Committee action and
should not be interpreted as a change to, or affirmation of, a Credit Rating
or Rating Outlook.
Additional Contact:
Financial Institutions Ratings Europe; FIG_Europe@standardandpoors.com
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Report Highlights Qatari Banks' Expected Robust Profitability In 2014 Despite Risks
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Report Highlights Qatari Banks' Expected Robust Profitability In 2014 Despite Risks
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