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Fitch Ratings has placed all Qatari banks on ratings watch list citing concerns over the sector's increasing reliance on external funding.
The credit ratings agency placed all banks’ long-term issuer default ratings (IDRs) on rating watch negative (RWN) in October as they are the most dependent among the Gulf Cooperation Council banks on non-domestic funding.
Their increasing reliance on external funding makes them more vulnerable to external shocks and investor sentiment and could moderately weaken the sovereign's ability to support the sector, if needed, the agency said.
Foreign liabilities accounted for 48 percent of the sector’s funding at end-Q3-21 (38 percent at end-2018) and net external debt increased to a substantial 80 percent of Qatar’s forecast 2021 GDP at end-Q3-21 (30 percent at end-2018).
This dependence, coupled with the growing size of the banking system, could weaken the authorities’ ability to support the sector. Banking sector assets increased to 303 percent of forecast 2021 GDP at end-Q3-21 from 212 percent of 2018 GDP, Fitch said.
However, it noted that near-term downside risks to Qatari banks’ credit profiles from the impact of the pandemic have been contained. The sector’s credit growth remained healthy at 7 percent in M9-21 (2020: 8.5 percent) despite cuts to government capital spending. Fitch recently revised the outlook on its operating environment score for the sector to stable from negative.
The government’s fiscal and monetary response to the pandemic has also helped to limit the impact on the banks’ financial profiles. "We expect the near-term risks to asset quality to remain largely contained, even when credit deferrals expire, given the recovering economy and the banks’ strong provisioning levels."
According to the IMF, Qatar, the world’s biggest exporter of liquefied natural gas, is set to grow at 3 percent this year.
(Writing by Brinda Darasha; editing by Daniel Luiz)
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