London – Moody’s Investors Service has changed on Tuesday the outlook on Qatar’s banking system from stable to negative due to weak operating conditions and continued funding pressures facing its banks.
The agency stated that this also depicts Qatar’s weak ability to support the country’s bank.
The report entitled, “Banking System Outlook – Qatar; Weakening operating conditions and continued funding pressures drive our negative outlook”, expresses Moody’s expectation of how bank creditworthiness will evolve in Qatar over the next 12-18 months.
Vice President and analyst at Moody’s Nitish Bhojnagarwala said that Qatari banks’ reliance on external funding has increased in recent years due to a significant decline in oil-related revenues, and this leaves them vulnerable to shifts in investor sentiment given that the funding is confidence-sensitive.
The report expects Qatar’s GDP growth to slow down to 2.4 percent in 2017 from exceptional rates of around 13.3 percent recorded during the 2006-14 period.
In addition, domestic credit growth will also slow to a 5-7 percent range for 2017 and 2018, down from 15 percent in 2015.
The four countries relations’ severance with Qatar, gradual economic slowdown, and continued challenges in the construction and contracting sector, will lead asset quality to decrease slightly, according to Moody’s.
In June, Saudi Arabia, Bahrain, Yemen, Egypt and the United Arab Emirates cut all ties with Qatar for its involvement with terrorism and funding terrorist organizations.
The agency also expects system-wide problem loans to increase to around 2.2 percent of gross loans by 2018, up from 1.7 percent as of December 2016.
Moody’s expects tangible common equity to increase to around 15.5 percent of risk-weighted assets by end 2018 from 14.4 percent, as of December 2016, driven by slower-than-normal credit growth and higher profit retention.
Because of diplomatic dispute, Moody’s expect some outflows of foreign deposits and other external funding, around 36 percent of total banking system liabilities as of May 2017.
The banks’ high liquidity buffers, 24 percent of total assets as of December 2016, would likely decrease as domestic deposits remain tight due to reduced oil revenues.
Qatari banks’ profitability will likely decline, with return-on-assets dwindling to around 1.4 percent for 2017, from 1.6 percent in 2016, driven by increases in funding and provisioning costs.
Qatar Finance Minister announced on July 20 that Doha could employ about $340 billion of reserves, about $40 billion gold at Qatar’s central bank and $300 billion at the Qatar Investment Authority.