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Wednesday, April 24, 2024 10:39 GMT
Although the COVID-19 pandemic and subsequent oil price drop has sparked negative rating pressure for global banks, the damage is expected to be manageable in Qatar, according to S&P Global Ratings. Thanks to Qatari government’s highly supportive stance toward the economy and banks. Globally, the bank ratings are expected to be largely resilient in the near term. Governments’ significant direct support to corporate and household sectors, banks’ generally strong capital and liquidity positions at the onset of the pandemic, supported by a material strengthening in bank regulations over the past decade will help the banking industry to remain more or less resilient.The global rating agency’s “Country-By-Country Outlook for Midyear 2020” noted that Qatar’s government is wealthy and will maintain a highly supportive stance toward the economy and banks. The Midyear Outlook on Qatar noted: “The public sector is a key driver of loan growth, with the non-oil private sector contributing only around one-third of GDP. Given low hydrocarbon prices, the Qatari government has postponed some of its discretionary projects, while many infrastructure projects are nearing completion. We therefore expect fiscal expenditure to fall over the medium term, which could be offset somewhat by the development of new gas fields, providing some lending stability.” The rating agency sees the large presence of public sector deposits as a stabilizing factor. However, it believes Qatari banks’ dependence on external funding as a source of risk. These flows can be volatile because of market instability as a result of COVID-19 or if geopolitical risks escalate. S&P expects the government to provide support in case of significant outflows, as it did when a few Arab states imposed a blockade of the country in 2017.Qatar’s real GDP growth is expected to fall by 5.2% in 2020 before recovering in 2021, with downside risks still significant. Moreover, the domestic demand and consumer confidence is also expected to remain low.On the bank’s asset quality, the report noted that the significant presence of the government and government-related entities in loan books should somewhat mitigate the extent of asset quality deterioration.“However, we still expect that small and midsize businesses, particularly in hospitality and real estate, will add to the formation of nonperforming loans. We expect the system’s nonperforming assets to climb to 3.5% by 2021, a figure likely to mask a divergence between those banks with access to high quality, strategically important borrowers and those without.”The external funding of Qatar banks is likely to decline but remain high.