By Sarah Townsend
BMI Research predicts government borrowing will provide 'lifeline' to banks
Qatari banks’ profitability is expected to decline over the next two years as low oil prices continue to create challenging economic conditions.
The country’s GDP growth is expected to average 3.5 percent over the next 24 months, compared to 8.7 percent between 2010 and 2015.
As a result, commercial banks in Qatar will face fewer lending opportunities and expansion is forecast to average 9.6 percent through to 2018, compared to 15.6 percent over the past five years, according to a study by BMI Research.
Increased government borrowing will provide some opportunity for asset expansion until private lending recovers, but this emerging sector will be less profitable, BMI’s study said.
It claimed Qatari corporates and households are already borrowing less than in the past. In the first six months of 2016, credit growth in general trade, industry and consumption averaged 10.9 percent, compared to 25.7 percent the previous year.
By contrast, credit growth in the real estate sector accelerated over the same period, with developers ramping up investment in tourism-related real estate in preparation for the FIFA World Cup 2022.
The real estate sector is expected to continue outperforming over the coming quarters, BMI said – however, opportunities in this sector will be too limited to drive overall expansion for Qatari commercial banks.
Instead, public sector borrowing will provide their “lifeline” over the coming two years, the report reiterated.
Over the past nineteen months, Qatari banks have seen their exposure to the public sector increase significantly. In July 2016, claims on the public sector accounted to 27 percent of commercial banks claims, compared to 22 percent in January 2015.
The trend is accelerating, said BMI. Between January and July 2016, claims on the public sector grew by 45 percent year-on-year on averag e, compared to 14 percent for the private sector.