New report predicts "boom town" economics for Qatar and local banking sector

The report examines Qatar's rapid move towards a diversified economy and its impact on the local banking industry.

"With the economy booming from government-directed investment and the initiation of over $120bn of gas, infrastructure and other major development projects, Qatar, and indeed the local banking sector, has a very solid outlook," says Raj Madha, Director of Equity Research at EFG-Hermes.

"We predict real GDP growth to reach double digits, while inflation is expected to push nominal growth into the high teens. On top of that, asset (particularly property) inflation is likely to offer opportunities of its own, while associated immigration is set to build the internal market," he says.

All this, says Mr Madha, translates in to an equally bright future for the banking sector.

"The impact on the local banking sector is clear; lending growth has averaged 42% per annum for the last three years to October 2007 and, although this is slowing, we anticipate this trend to continue for some time."


According to the report, Qatar's future economy and subsequent credit demand will be predominantly driven in the short term by the large development projects and related financing needs.

"These projects, while not particularly profitable for banks, will create additional financing opportunities for the sector which are likely to be more lucrative than the core contracts. This, combined with a growing knowledge society, will lead to further growth and development of retail products such as wealth management, mortgages, and credit cards. On the corporate side, we expect local banks will also benefit from trade finance, structured finance and other more service based solutions," he says.

"So for the foreseeable future, we believe Qatar's prospects are bright - strong loan growth, driven by a strong economy, driven by massive liquidity and investment."

The EFG-Hermes report also studied in detail three local banks - Qatar National Bank (QNB), Commercial Bank of Qatar (CBQ) and Qatar Islamic Bank (QIB).

"While the three banks are significantly different from one another, they collectively hold 65% of the market share of loans in Qatar," says Mr Madha

The report predicts more competition in the retail banking market, with a possible change to the way current fees and commissions are structured. Growth in the Islamic banking sector is also expected to remain strong with increased competition amongst existing players.