Qatari banks focus on debt securities

By Satish Kanady
DOHA: Qatari banks are increasingly reducing their reliance on short-term interbank funds and focusing more on issuing 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 reduce funding costs.
A breakdown of Qatari bank funding over the past five years shows an increase in debt issuance. The 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 6%. This is compared to four percent and three percent in 2012 and 2011 respectively. Debt issuance was just one percent of the bank’s total funding five years ago.
As domestic debt issuance grew rapidly, public debt reached 36% of GDP in 2013, the chart shows.
In a note sent to The Peninsula yesterday, SICO Investment Bank analyst Chiradeep Ghosh said: “Qatari banks are using the low interest rate environment to issue long-term bonds to reduce risk. mismatch in the duration of assets and liabilities on their books resulting from financing long-term projects Banks will continue to issue long-term debt in 2014 to reduce funding costs, while increasing the duration liabilities.
According to Ghosh, the story of Qatari banks will be more compelling in 2014 than last year. Banks are shifting their loan portfolios from real estate to construction, which is supported by cash flows from public sector entities. While the risks remain, they have relatively subsided as we do not expect these quasi-governmental entities to default in the current economic environment. The analyst SICO also predicts a moderate, but steady, rise in property prices in Qatar.
We are seeing increasing evidence that major Qatari banks are focusing on different segments of the market. While some banks focus on lending to government or quasi-government entities, other banks focus on the periphery/large contractors. Another group of banks, due to their relatively weaker equity portfolio, continues to focus on SMEs and retail. “This is in our view positive for banks, due to limited competition in each segment,” he said.
The SICO analyst noted that his earlier concerns about Qatari banks’ exposure to real estate portfolios have been partially allayed, with banks reducing their lending to the real estate sector and replacing it with lending to the public sector and entrepreneurs working on the government. -supported projects.
SICO is optimistic about Qatari banks for 2014. “We expect strong national balance sheet growth to continue in 2014, with overall loan portfolio growth of 13-14%…”.
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John A. Bogar