By Satish Kanady
DOHA: The pace of growth in net profit of Qatar’s banking sector declined in 2012. Though the growth in gross income of banks was higher in 2012 as compared to previous year’s numbers, the profitability measure was on a downward trajectory, Qatar Central Bank (QCB) has observed.
The quantum of fresh slippage has risen over the past year and therefore, banks need to be on guard against any over-extension or ‘cheap loans’, the central bank cautioned in its latest Financial Stability Review.
The QCB noted the lowest interest environment has led to a decline in both the return on advances and the cost of deposits. In fact, the decline in the former has outpaced the fall in the latter, in turn, impacting profitability. Most profitability appears to be on a downward trajectory during 2012.
The increase in administrative expenses has amplified the aggregate expenditure, pulling down the increase in net profit from 22.3 percent in 2011 to 6.6 percent in 2012. Income from commission and other miscellaneous sources declined for Islamic and conventional banks in 2012. The index of income diversification for 2012 indicates that the value was the lowest for conventional banks and the highest for foreign banks.
The Risk Index for the banking sector edged up towards the end of the year 2012. Even so, the index stayed below the 2010 level, the highest recorded after the financial crisis. After bottoming out in 2011, the banking stability index, an overall index of risk for the banking sector increased during the year. The increasing trend in the overall risk index observed towards the end of 2011, remained range bound in the firs half of the year. During the second half, and in particular towards the closing month of the year, the index moved up substantially.
The QCB observed that the quarterly growth in non-performing loans (NPLs), which measures the credit risk on account of fresh delinquent loans, was high during the first three quarters, as compared to the last quarter. On a year-on-year basis, the fresh slippage ratio stood at 0.4 percent in 2012 as compared to 0.2 percent in 2011. An increase in the slippage ration indicates deterioration in credit quality, it noted.
Sectoral analysis of credit risk suggest that private sector accounts for over 80 percent of overall NPLs, cross border NPLs constitute the remaining. Around half of the delinquent loans are from individuals. NPL ratio on cross border credit is highest at 4.7 percent, while domestic private sector delinquent loans stood at 2.9 percent.
The Central Bank reviewed that the banking sector’s credit grew substantially on account of high credit demand from the public sector. The quantum of credit provided to non-residents also increased substantially by 35 percent.