Qatar banks’ reliance on foreign lenders higher than ever

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Qatari banks are borrowing record loans from foreign lenders to shore up their funding as the tiny gas-rich nation starts preparations to host the 2022 football World Cup.

According to Bloomberg News calculations based on central bank data, net interbank borrowing from foreign banks almost tripled in the year to April, with Qatar’s lenders being net borrowers of 111.9 billion riyals ($31 billion) – the highest since at least 2004.

Qatari central bank data showed the country’s loan-to-deposit ratio was 120 percent in April, the highest in the Gulf Cooperation Council, prompting the banks to tap new funding sources as loan growth outstrips deposits.

Qatar banks saw the rates rising six basis points in 2012 to 1.22857% on Tuesday, compared with equivalent rates of 0.91625 percent in Saudi Arabia and 1.5275 percent in the UAE, making it the second-highest three-month interbank rates in the GCC.

“Qatari banks have grown increasingly dependent on the international interbank market,” said Nick Stadtmiller, head of fixed-income research at Dubai-based Emirates NBD PJSC.

“It’s not an accident that rates are high in Qatar, which could cause foreign money to flow into the system. Qatari banks need foreign capital to fund credit growth, and they need higher interest rates to attract that money.”

Qatar, the world’s richest country in terms of per-capita income, raised public spending by 28% in this year’s budget, the state-run Qatar News Agency reported last month.

The FIFA World Cup host is set to build stadiums, hotels, roads and a new city to house 200,000 people before 2022. International Monetary Fund estimates suggest the country may invest about $100 billion in the “medium term” on projects.

Qatar banks, including Qatar National Bank SAQ – the biggest publicly traded bank in the six-nation GCC by assets, posted a combined 35% surge in loans and advances in the year to April, compared with growth of 13% in the same month last year, central bank data showed.

By comparison, deposit growth slowed to 4.5% in April, from 22% the same month last year.

“The high loan-to-deposit ratio is the symptom of a fast economic growth, especially in 2011, when loan growth has recovered at the fastest pace by far amongst the GCC economies,” Philippe Dauba-Pantanacce, Dubai-based senior economist at Standard Chartered Plc, told Bloomberg.

“While this can constrain somehow the ability to substantially increase lending without attracting more deposits, it should not mean that the Qatar banking sector is going through a rough patch,” he added.

Bloomberg data suggested Qatar’s economy grew 18.8% last year, almost three times faster than Saudi Arabia’s, and will probably expand another 6.1% in 2012, the GCC’s fastest.

Doha is forecasting a budget surplus of 23% in its 2012-2013 fiscal budget, compared with 16% a year earlier, the Qatar News Agency reported.

Qatar’s central bank sells treasury bills at monthly auctions at the highest yields in the GCC in an effort to deepen the country’s debt market.

The Central Bank Governor Sheikh Abdullah Saud al-Thani said on 10 May the apex Qatar bank offered yields of between 1.63% and 2.85% on the 4 billion riyals of securities it sold last month. The regulator sold 4 billion riyals of bills at an auction Tuesday, including 2 billion riyals of three-month securities and 1 billion riyals each of six-month and nine-month notes.

The nation’s banks have also turned to the bond market for funds, raising a combined $2 billion so far this year, up from no issuances in the same period last year.

Sales included Qatar National Bank’s issuance of $1 billion dollar-denominated notes in February at a coupon of 3.375 percent. Doha Bank QSC and Commercial Bank of Qatar QSC also sold $500 million each in dollar bonds.

Stadtmiller of Emirates NBD insisted that greater dependence on funding from abroad may leave Qatari banks more exposed to the worsening of Europe’s debt crisis, and potentially lead to an increase in interest rates.

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