Global Investment House – Qatar Economic & Strategic Outlook – Banking Sector Qatari banking sector is in the midst of change and becoming more challenging. The sector has been witnessing entry of new banks – one each in Islamic banking and conventional banking segments. In the Islamic Banking segment, Al Rayan Bank has already raised the funds from the primary market in 2006. In the conventional banking segment, Gulf Commercial Bank is planning to come out with its IPO during the current year. The growing importance of Islamic finance, especially in the GCC region, have encouraged many Qatari banks to venture into Islamic banking as a window within the conventional bank. In 2005, all the three major banks, namely Qatar National Bank, Doha Bank and Commercial Bank started Islamic banking. During 2006, Ahli Bank started its Islamic banking operations. So effectively all the six leading banks in Qatar are now providing Islamic banking products. However, we believe that old Islamic banks will continue to dominate the Islamic banking segment and new conventional banks will face tough competition among themselves to have a pie of the Islamic banking sector. The new Islamic bank, Al Rayan Bank, being the largest Islamic bank with a capital of QR7.5bn (US$2.06bn) will pose stiff competition in the market.
Qatar is becoming a favorite destination for investors. There are banks negotiating with the Central Bank of Qatar for opening branches in the country. However, there is intense competition among the existing banks to increase their client base. Qatar’s gas-centric economy and small market are the constraints within which all banks operate. Apart from this the newly-established banks and also foreign banks, including those that will be based in the Qatar Financial Centre, will also create stiff competition in the sector.
The Middle East has emerged as the world's biggest project finance market. Qatar alone will spend about US$130bn across various sectors over the coming six or seven years as indicated by the Minister of Finance Yousuf Hussain Kamal. Out of the US$130bn proposed to be invested in Qatar over the next few years, around 50% will come through project finance. Current projects in the oil and gas sector in Qatar currently amount to more than US$60bn.
During the period 2002-06, total credit facilities grew at a CAGR of 29.7% to reach QR102.5bn, while total domestic credit grew by 27.4% to QR94.8bn. Almost all the sectors have witnessed double digit CAGR in their credit off-take, during 2002-2006, except credit to public sector which witnessed a marginal growth of 6.4%. During 2006, total credit facilities of the banking sector grew by 47.1% to reach QR102.5bn from QR69.7bn at the year end 2005. During 2006, the share of the public sector in the total credit facilities declined to 21% from 26.7% in 2005, which shows the diversification of lending to other businesses/sectors. The public sector witnessed a growth of 15.5% in credit off-take in 2006 which is low as compared to growth registered by other economic sectors which further points towards diversification of lending to other sectors of the economy. The credit to the public sector was at QR21.5bn in 2006. The personal segment, which had the highest share in the total credit off-take, witnessed a growth of 42.2% in 2006 to QR35.2bn. For the last few years banks have witnessed significant growth in credit off-take to personal segment due to the increased focus on consumer loans as part of their thrust on retail banking.
During the period 2004-2006, the total assets of the commercial banking sector grew at a CAGR of 43.5% to QR189.5bn in 2006 from QR92.0bn in 2004 and in 2006 the asset base witnessed a growth of 45.4%. A major portion of this growth in the asset base was funded through the inflow of funds from resident deposits as it accounted for more than 63.0% of the total liabilities at the end of 2006.
The most significant part of the operations of the listed local banks in 2006 was the decline in the growth rate of their profitability. The year 2006 saw the net profit of the listed banks grew by 28.1%, while in 2005 their net profit increased significantly by 109%, which was mainly due to strong investment income on the back of buoyant stock markets not only in Qatar but in entire region. Going forward, we believe that the core earnings of the banking sector are likely to drive growth in net income.
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