Capital buffers remained strong, supported by solid earnings

Qatari banks total operating profit rose by 4% to QR 43.9 billion in 2020, up from QR 42.1 billion in 2019 that was boosted by higher net interest income of 9%, according to a report by credit ratings agency, Moody’s. 

The report said provisioning costs for Qatari banks will remain high due to Covid-19 pressures despite resilient bank results in 2020. Total expected income will continue to remain subdued in 2021 as lower business volumes strain profits. 

“This will be driven by a slow economic recovery that will make it harder for borrowers in sectors such as real estate, construction and contracting to repay debt,” said Nitish Bhojnagarwala, Vice President, Senior Credit Officer at Moody’s Investors Service.

Read also: Qatar’s fiscal deficit decrease boosts 2021 economic outlook

While loan quality has largely stayed stable, problem loans are set to emerge across sectors most vulnerable to the pandemic, such as hotels and restaurants, airlines, tourism and retail. 

Despite this, Qatari banks hold strong capital buffers that have been supported by lower dividend pay-out ratios and firm earnings. These strong buffers, coupled with an oil price recovery and greater political stability, will support banks’ financial performance this year.

“The banking sector risk rating remains at BB, although the underlying score has improved by 5 points. The rating is supported by a robust regulatory framework and solid capital and liquidity indicators,” according to a risk report by The Economist Intelligence Unit (EIU), led by analyst Adnane Allouaji.