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Qatari banks face weakening profitability in 2016, says S&P report

UAE. In an article published today, titled “Qatari Banks’ Profitability To Wane In 2016,” Standard & Poor’s Ratings Services says that it anticipates tightening liquidity, slackening credit growth, and weakening profitability for Qatar’s banks in 2016.

Although the drop in hydrocarbon prices and the Qatari government’s streamlining of its public investment program are putting the brakes on the domestic economy, banks’ asset quality held generally steady while credit growth remained resilient on the back of strong private sector activity in 2015. Nevertheless, as liquidity in the banking sector tightens further with the rise of local and global interest rates, we expect credit growth will lose some steam.

“We think that operating conditions for Qatari banks will toughen this year, denting their profitability,” said Standard & Poor’s credit analyst Timucin Engin.

In 2015, the Qatari public sector withdrew some of its deposits from the domestic banking system in the process. We expect more of the same in 2016 and foresee a further squeeze on banks’ liquidity.

Further trimming of government spending will likely reduce private-sector lending opportunities. At the same time, we think banks will manage their funding profiles more conservatively, which should translate into lower growth. We also expect credit losses will increase given the economic slowdown and the pressure we expect in some sectors, such as contracting.

“Importantly, we foresee some tension on banks’ asset quality,” added Standard & Poor’s credit analyst Nadim Amatouri. “Over the past few years, public-sector lending took a back seat, while a visible portion of new lending was in the private sector. We now anticipate increased credit losses in the private sector, particularly given our expectations for slowing real GDP growth.”

In particular, the banks’ exposures to contractors are susceptible to losses amid slacker capital spending. Moreover, as in other Gulf Cooperation Council (GCC; Bahrain, Kuwait, Oman, Qatar, United Arab Emirates, and Saudi Arabia) countries, we think a drop in the performance of capital markets could translate into some losses on certain high-net-worth portfolios.

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