Commercial banks in Qatar are lending less and can expect slower growth in the coming two years due to the collapse in global oil prices, a new report has warned.

The hydrocarbon slump and resulting economic slowdown have led Qatari companies and households to spend more conservatively in recent months.

Conditions are expected to improve as oil prices slowly rise in the coming years.

But banks should be prepared for a “more challenging operating environment,” a recent study from UK-based BMI Research said.

“We expect to see a gradual improvement in the situation for Qatari banks over the years, as oil prices recover moderately, but there is no getting back to the boom years of 2003-2012,” BMI’s country risk analyst for MENA Olivier Najar told the Gulf Times.

GDP growth slows

According to BMI, Qatar’s real gross domestic product (GDP) is forecast to continue to grow, but at a much slower rate than in recent years.

It said that GDP – which is seen as one of the main measures of a country’s economic health – will average around 3.5 percent in the coming two years. That’s compared to 8.7 percent between 2010 and 2015.

“As a result, Qatari banks will face fewer lending opportunities,” the report said.

This is expected to have a knock-on effect on local banks’ asset expansion.

BMI forecasts that growth in this arena will average some 9.6 percent until the end of 2018 – compared to 15.6 percent over the past five years.

Fewer loans

As a result of the tighter economic conditions, companies and individuals are borrowing less money than before.

Credit growth in trade, industry and consumption stood at 10.9 percent for the first six months of this year, compared to 25.7 percent for the same period last year, the report said.

But growth is accelerating in real estate, as developers boost their tourism investments ahead of the 2022 World Cup.

Qatar is expanding the number of hotels and apartment-hotels in the coming six years.

Just by the end of 2018, the number of rooms is expected to grow by more than 7,000 – to 23,567.

However, this is not going to be enough to off-set the slowdown in other sectors, BMI said.

Bailout

Instead, the country’s banks will likely be bailed out by public sector borrowing, though BMI warned against this strategy:

“Diversification into the public sector will erode profitability for commercial banks in Qatar,” it said.

The report added that the interest rate on government securities is less than that required for private sector loans.

Thoughts?