DOHA: The earnings of Qatar’s banks are expected to pick up pace in 2014. The banks are projected to record 11 percent year-on-year (YoY) rise in its earnings this year.
Qatari Bank’s NII (net interest income) is to exhibit strongest growth, 10 percent year-on-year, within the GCC banking sector. Growth in the topline would come from a 14 percent YoY rise in loans, outpacing other GCC countries, ‘GCC Investment Strategy-2014’ research note of Global Investment House (GIH) said.
“We expect spreads to remain flat in 2014 as the government is expected to keep interest rates at a lower level due to massive infrastructure spending ahead of the 2022 World Cup. Qatar’s non-interest income is anticipated to add to the banking income, driven by a massive 14 percent YoY rise in fee and commission income,” said Faisal Hasan, Head of Research, GIH.
Unlike other GCC countries, Qatar’s provision expense would remain flat. Non-performing loans (NPLs) would increase by 15 percent YoY. The report said Qatari banks recording collective average return on equity of 17 percent, which is the highest in the region. Dividend yields are also anticipated to remain highly attractive despite rationalisaiton in payouts; we estimate it to be around 3.4 percent with some even yielding in excess of five percent.
On Qatar’s challenges and opportunities, the report said Qatar’s burgeoning economy would trickle down quite favourably to its banking sector. Qatari banks are still expected to exhibit one of the strongest loan disbursements in GCC, especially as major spending on the FIFA World Cup inches closer. The pitch of the heavy infrastructure spending is driving banking volumes and profits. The banking sector is expected to draw attention once again by posting the strongest topline growth among GCC banks and above average profit growth figures.
The report said the actual application of MSCI upgrade will generate heightened interest in Qatar. The actual implementation will lead to increased focus and increased volumes from index tracking funds. Though heightened activity was seen around the time the decision to upgrade was taken, the activity was not on par of Emerging Market tracking funds. These funds will come into the picture once companies from Qatar are selected and their weights within the index disclosed so that fund managers can rebalance their position accordingly.
Public sector lending has yielded a strong growth in the loan books of Qatar’s banks over the last three years, as the government-led infrastructure spending gained momentum. Till November 2013, government lending accounted for 32 percent of the incremental lending of the country. Among GIH’s coverage universe QNB and Masraf Al Rayan were the key lenders to the government. For QIB, CBQ and Doha Bank, the real estate and commercial sectors accounted for 40-45 percent of the total loan portfolio.