Qatari Banks’ Reliance On Foreign Banks Registers A Record On Preparation For World Cup

Qatar banks’ reliance on foreign lenders has risen to a record this year as their funding is stretched by the surge in project financing in the nation preparing to host the 2022 soccer World Cup.

Net interbank borrowing from foreign banks almost tripled in the year to April, with Qatar’s lenders being net borrowers of 111.9bn riyals ($31bn).

Qatari banks are tapping new funding sources as deposits fail to keep up with loan growth. The loan-to-deposit ratio was 120% in April, the highest in the Gulf Co-operation Council, central bank data show. Qatar banks also pay the second-highest three-month interbank rates in the GCC. The rate rose six basis points in 2012 to 1.22857% yesterday, compared with equivalent rates of 0.91625% in Saudi Arabia and 1.5275% in the UAE.

“Qatari banks have grown increasingly dependent on the international interbank market,” said Nick Stadtmiller, head of fixed-income research at Dubai-based Emirates NBD. “It’s not an accident that rates are high in Qatar, which could cause foreign money to flow into the system. Qatari banks need foreign capital to fund credit growth, and they need higher interest rates to attract that money.”

The world’s richest country based on per-capita income boosted state expenditures by 28% in this year’s budget, the Qatar News Agency reported last month. The nation of 1.8mn people plans to build stadiums, hotels, roads and a new city to house 200,000 people before the world’s most-watched sporting event. The country may invest about $100bn in the “medium term” on projects, according to International Monetary Fund estimates.

Banks in the country, which include QNB, the biggest publicly traded bank in the six-nation GCC by assets, posted a combined 35% surge in loans and advances in the year to April, compared with growth of 13% in the same month last year, central bank data shows. By comparison, deposit growth slowed to 4.5% in April, from 22% the same month last year.

The high loan-to-deposit ratio is “the symptom of a fast economic growth, especially in 2011, when loan growth has recovered at the fastest pace by far amongst the GCC economies,” Philippe Dauba-Pantanacce, Dubai-based senior economist at Standard Chartered, said in an e-mailed response to questions yesterday. “This can constrain somehow the ability to substantially increase lending without attracting more deposits.”
Qatar’s economy grew 18.8% last year, almost three times faster than Saudi Arabia’s, according to data compiled by Bloomberg. It will probably expand another 6.1% in 2012, the GCC’s fastest pace, according to the median forecast of 11 economists compiled by Bloomberg.
The government of the world’s biggest exporter of liquefied natural gas is forecasting a budget surplus of 23% of expenditure in its 2012-2013 fiscal budget, compared with 16% a year earlier, the QNA reported.

In an effort to deepen the country’s debt market, The Qatar Central Bank sells treasury bills at monthly auctions at the highest yields in the GCC.

The central bank offered yields of between 1.63% and 2.85% on the 4bn riyals of securities it sold last month, Governor HE Sheikh Abdullah bin Saud al-Thani said on May 10. The QCB sold 4bn riyals of bills at an auction yesterday, including 2bn riyals of three- month securities and 1bn riyals each of six-month and nine-month notes.

“Any liquidity tightness could be met by increased government deposits in the banking sector and/or lower issuances of T-bills,” Monica Malik, Dubai-based chief economist at EFG- Hermes Holding, the biggest publicly traded Arab investment bank, said in an e-mail on Monday. “If there is a fall in external lending or any wider tightening in banking sector liquidity, we believe that Qatar will be able to ensure that funding is available domestically.”

The nation’s banks have also turned to the bond market for funds, raising a combined $2bn so far this year, up from no issuances in the same period last year. Sales included QNB’s issuance of $1bn dollar-denominated notes in February at a coupon of 3.375%. Doha Bank and Commercialbank also sold $500mn each in dollar bonds.

Still, greater dependence on funding from abroad may leave Qatari banks exposed to any worsening of Europe’s debt crisis, and potentially lead to an increase in interest rates, Stadtmiller of Emirates NBD said.

Qatari banks relied on funds from banks abroad to finance a record 15.5% of their balance sheets in April, according to Bloomberg News calculations based on central bank data. That ratio rose from 7.1% in April 2011 and just above 5% in June 2011, the data show.

“If European banks cut foreign exposure quickly, the impact would be felt more strongly in Qatar than elsewhere in the GCC,” Stadtmiller said. “Qatari interest rates could rise if European banks cut their lending to the country,” according to Bloomberg.