By Satish Kanady
DOHA: Qatari banks are increasingly reducing their reliance on the short-term interbank funds and focusing more on issuance of debt securities. Investment analysts from two separate regional banks noted yesterday that Qatari banks are focusing more on bonds and will continue to do so in 2014 to lower funding costs.
A funding breakdown of Qatari banks for the past five years shows a jump in issuance of debt securities. NBK’s Qatar Chart Book for January 2014 reveals that of the total funding of Qatari Banks (as of November 2013), debt issuance accounted for six percent. This is compared to four percent and three percent in 2012 and 2011 respectively. Debt issuance accounted for just one percent of the bank’s total funding five years ago.
As domestic debt issuance proceeded apace, government debt reached 36 percent of the GDP in 2013, according to the chart.
In a note sent to The Peninsula yesterday, the SICO Investment Bank analyst Chiradeep Ghosh said: “Qatari banks are using the low interest rate environment to issue long-tenured bonds to reduce the asset-liability duration mismatch on their books arising from funding long-term projects. The banks will continue to issue long-term debt in 2014 to lower funding costs, along with increasing the duration of liabilities.”
According to Ghosh Qatari banks’ story will be more compelling in 2014 than the last year. Banks are shifting their lending portfolios from real estate to construction, which is backed by cash flows from public sector entities. Although risks still persist, they have relatively moderated as we do not expect these quasi government entities to default in the current economic environment. The SICO analyst is also foresees a moderate, but steady, real estate price rises in Qatar.
We are seeing increasing evidence of major Qatari banks focusing on different segments of the market. While some banks focus on lending to the government or quasi-government entities, other banks are focusing on periphery/large contractors. Another group of banks, because of their relatively lower equity book, continues to focus on SMEs and retail business. “This is in our opinion is positive for banks, due to limited competition in each segment”, he said.
The SICO analyst noted that its earlier concerns related to the Qatari banks’ exposure to real estate portfolios have been partially waned, with banks lowering their lending to the real estate sector, and replacing it with public sector lending and to contractors who are working on Government-backed projects.
The SICO is bullish on Qatari banks for 2014. “We expect strong domestic balance sheet growth to continue in 2014, with the aggregate lending book growing at 13-14 percent… .”