DOHA: After recording a high 63.3 percent increase (quarter-on-quarter) in their provision expenses in the second quarter of 2013, Qatar-based banks are projected to extend the trend in the Q3, 2013. The quarterly result preview of GCC equities released by the investment bank SICO yesterday noted most Qatari banks are expected to report higher loan loss provisions in this quarter.
“Qatari banks are expected to report moderate balance sheet growth, with CBQ’s balance sheet getting a boost from its Turkish ‘Abank’s’ acquisition consolidation. We expect most Qatari banks to report higher provisioning charges”, Fatema AlDoseri, SICO’s financial analyst noted.
SICO’s observation on Qatari banks’ higher loan loss provisions is followed by two other reports that raised concerns about Qatar-based banks’ significant build up in their non-performing assets and increasing NPL ratio.
The ratings agency Standard & Poor’s in its latest GCC BICRA (Banking Industry Country Risk Assessment) comparison noted Qatar-based banks’ concentration in the real estate and construction sector is high at 19 percent of total loans at year-end 2011 and almost 25 percent when contractors are included. The ratings agency estimated that Qatari retail customers are highly leveraged and impaired retail loans have reached high levels recently. However, it noted Qatar’ Central Bank has imposed a maximum loan-to-value ratio (LTV) for residential mortgages of 70 percent in 2011, which should prevent any significant drift in mortgage loans’ asset quality indicators
“One of the main risks for the Qatari banking sector is its exposure to credit risk. This is underpinned by very rapid loan growth, lending and underwriting standards that we view as “aggressive”, and a high concentration in lending to cyclical or vulnerable sectors like real estate and construction.”
A top executive of a leading Qatari bank which registered a 89.7 percent year-on-year rise in provision due to growth in its overall loan portfolio told The Peninsula: “It is not correct to observe that we are ‘over-exposed’ to the real estate. We are strictly going by Qatar Central Bank directives’ on any sort of lending”.
Global Investment House in its H1, 2013 report noted the provisions of Qatar-based banks grew 63.3 percent on Q-o-Q basis, the second highest in the region after Kuwait, which is up 85.3 percent.
During 2Q13, the provisions for impaired loans of one of the leading banks in Qatar increased to QR134m from a reversal of QR13mn in 2Q12. The increase was primarily on account of prudential provision taken on domestic real estate loans. Another prominent bank registered a 89.7 percent year-on-year rise in provisions due to growth in its overall loan portfolio.