Moody's Investors Service's outlook for Qatar's banking system remains stable, unchanged since 2010, reflecting the rating agency's expectation that the Qatari government (Aa2 stable)will maintain high levels of public spending and continue to drive economic growth, despite the impact of lower oil prices.
"Despite currently low oil prices, we expect that Qatar's real GDP will expand by seven per cent in 2015, as a combination of sizable government resources and a relatively low fiscal breakeven level allows elevated public spending and hence continued economic expansion," says Nitish Bhojnagarwala, Moody's Assistant Vice President and author of the report. Qatari banks will maintain robust financial metrics over the next 12 to18 months, including strong earnings and capital buffers, as well as low levels of non-performing loans (NPLs). However, Moody's notes that these strengths are moderated by (1) deposit pressures owing to lower government related balances stemming from low oil prices; (2) the banks' increasing dependence on market funding; and (3) loan book concentrations reflecting the undiversified economy. Moody's notes that Qatari banks' asset quality will continue to be supported by the strong operating environment evolving prudential regulation and the sizeable proportion of high quality government-related loans. "We expect that system NPLs will remain at around 1.5 to two per cent of gross loans over the next 12-18 months," says Mr. Bhojnagarwala. The rating agency projects that banks' balance sheets will continue to grow, supporting domestic economic environment and foreign expansion. While Moody's expects that capitalisation levels will remain solid, they will likely decline slightly, with the tangible common equity to risk-weighted assets ratio in the 15 per cent-17 per cent range over the outlook horizon. "Qatari banks will face deposit pressures as lower oil prices reduce the flow of funds from the government and government-related entities - the largest depositors in the system" says Khalid Howladar, Senior Credit Officer at Moody's. In response, Moody's expects that Qatari banks will increase their reliance on longer term and costlier market funding to support growth over the outlook period, resulting in an increased dependence market funding. "However, Qatari authorities remain willing and able to provide support to the banks in case of need," he adds. The stable banking system outlook is aligned with Moody's stable outlooks on most of the rated Qatari banks; the outlook on Qatar's Aa2 government bond rating is also stable.
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