Fitch: state support helps Qatari banks resist negative trends

Notwithstanding the support, Fitch believes strong economic fundamentals should also help Qatari banks to withstand the current economic downturn.

Amid a worsening global credit crisis the Qatari banks reported very strong results for 2008. Robust operating earnings were driven by rapid loan growth, mainly during H108, after which loan impairments and investment write-downs started to rise reflecting weaker operating conditions.

These negative trends continued in Q109 as significantly slower loan growth reflected a more cautious approach to new business and tighter liquidity conditions in the market.

Overriding many of these risks is the extremely high probability of support from the State. Fitch takes comfort from the unprecedented support measures taken by the State to shore up the sector since the onset of the global credit crisis, although the banks did not really need any tangible support to date.

These include an $5.3bn package by the Qatar Investment Authority to take equity stakes in the banks (5% stakes taken to date in all the listed Qatari banks, except QNB which is already 50%-state owned) and the government acquiring the badly performing local equity portfolios of Qatari banks as a means of de-risking their investments.

This week Qatar announced it was spending a further $4.1bn to buy the domestic real estate portfolios of banks given the increased risks in the sector. These are robust support measures which have significantly improved banks' risk profiles and instilled confidence in the sector at a time of heightened uncertainty.

Like other GCC countries, Qatari banks are expected to see their 2009 profitability challenged by slower loan growth, funding constraints and increasing impairment charges.

"Asset quality remains the biggest issue facing Qatari Banks in 2009. Fitch expects loan defaults to rise given the rapid growth in lending during the boom,"

says Robert Thursfield, Director, in Fitch's Financial Institutions team. Retail credit risks have also risen, as the sector remains over leveraged, but Fitch does not believe retail risks in Qatar are as high as in other GCC markets.

Fitch also highlights the weak funding profiles of the banks, specifically the overall shortage of customer deposits in the market, which constrain liquidity and lead to an increasing reliance on inter-bank funding.

Fitch maintains its Stable Outlook for the sector, reflecting government support and Qatar's strong economic fundamentals.