The outlook on Qatar's banking system is stable, reflecting Qatar's strong macro environment and high public spending levels that will continue to sustain growth and bank lending activity over the 12-18 month outlook period, said Moody's Investors Service in a new Banking System Outlook published Friday. The stable outlook also captures (i) the banks' limited asset-quality pressures and healthy capitalization levels; (ii) a stable deposit base and significant liquidity buffers; and (iii) strong earnings potential, the ratings agency said. The report also noted that these supportive factors are counterbalanced by high levels of concentrations on both sides of the balance sheet; the banks' dependence on the domestic economy, which is undiversified and heavily reliant on the oil and gas sector; and the credit risks relating to exposures to the construction and real-estate sector. Moody's forecast that Qatar's real GDP will expand by 6 percent in 2012, driven by high oil prices, strong liquefied natural gas export volumes and accelerated public spending, which will stimulate the non-oil economy. This, in turn, will support banks' asset quality, drive credit growth - likely to be between 20 percent-25 percent during 2012 – and increase bank revenues. Non-performing loan (NPL) levels will likely remain relatively stable at around 2 percent of gross loans, supported by Qatar's strong macro environment and improvements in the credit quality of banks' consumer portfolios. Following three rounds of pre-emptive capital injections by the Qatari government into the seven listed domestic banks between 2009 and 2011, culminating in a Tier 1 ratio of 20 percent as of December 2011, the sector's solid capital buffers provide high loss-absorption capacity, Moody's noted. The rating agency further said that core liquid assets – estimated at 34 percent of total assets in December 2011 – demonstrate that liquidity buffers are sound within the system, which remains predominantly deposit-funded. Moody's noted that this will continue to benefit from the strong ties with the Qatari government, which contributed around 23 percent of sector deposits as of December 2011, forming a stable (though concentrated) funding source. However, the banks have increased their dependence on wholesale funding – primarily short-term foreign interbank balances – which account for approximately 33 percent of total funding as of December 2011.
