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Standard and Poor's considers that Qatari banks' profitability will likely remain strong over the next 12 months. The expected normalization of u.s. Monetary policy may cause interest margins to contract. The risks that the banks face include concentration of their loan portfolios.
Standard and Poor's considers that Qatari banks' profitability will likely remain strong over the next 12 months. The expected normalization of u.s. Monetary policy may cause interest margins to contract. The risks that the banks face include concentration of their loan portfolios.
Standard and Poor's considers that Qatari banks' profitability will likely remain strong over the next 12 months. The expected normalization of u.s. Monetary policy may cause interest margins to contract. The risks that the banks face include concentration of their loan portfolios.
Primary Credit Analyst: Mohamed Damak, Paris 33144207320; mohamed.damak@standardandpoors.com Secondary Credit Analysts: Stephanie Mery, Paris (33) 1-4420-7344; stephanie.mery@standardandpoors.com Timucin Engin, Dubai (971) 4-372-7150; timucin.engin@standardandpoors.com OVERVIEW Qatari banks are well positioned to continue to deliver robust profitability by Gulf state standards. The expected normalization of U.S. monetary policy may cause Qatari banks' interest margins to contract. The risks that the banks face include concentration of their loan portfolios, their appetite for geographic expansion in riskier countries, and the domestic economy's high dependence on the oil and gas sectors. PARIS (Standard & Poor's) May 7, 2014--Standard & Poor's Ratings Services considers that Qatari banks' profitability will likely remain strong over the next 12 months in its report published today "Risks Are Unlikely To Dent Qatari Banks' Expected Robust Profitability In 2014." We foresee robust profitability for Qatari banks in 2014 following their outperformance versus peers in the Gulf Cooperation Council countries (GCC; Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates) over the past five years. "High interest margins, although contracting; briskly increasing business volumes mainly on the back of the government's investments; and banks' generally low cost bases are the main factors fueling this performance," said Standard & Poor's credit analyst Mohamed Damak. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 7, 2014 1 1312369 | 302218800 In this largely favorable environment, and given the solid economic growth we forecast in Qatar over the next few years, we think lending will continue to increase by about 10%-15% per year. The banking industry faces several risks, however. The normalization of interest rates in the U.S. within the next two years could be the most immediate damper on banks' profitability, in our opinion. A steep increase in U.S. interest rates could squeeze Qatari banks' interest margins because of the structural mismatch of their balance sheets, which carry long-term assets and short-term deposits. On the upside, we think that the U.S. Federal Reserve's monetary policy normalization will be gradual, allowing Qatari banks the necessary time to adjust their pricing. Mirroring the small size of the economy, high single name and real estate sector concentration exposes Qatari banks to the tail risk of default of top names or to setbacks in the real estate sector. During the 2009 real estate correction, though, the government shielded the banking system by providing significant and timely support. In addition, banks' increasing appetite for geographic expansion in riskier countries could weigh on their financial profiles and performance. Lastly, the heavy reliance of the Qatari economy and government accounts on the large oil and gas sector exposes the country to a sudden and persistent drop in oil and gas prices. Under such a scenario, the banking system could suffer through its exposures to large investment projects or to the expatriate retail segment. That said, we do not currently expect such a fall to occur within the next 24 months. For 2014 and 2015, we assume oil prices will remain above $95 per barrel. RELATED CRITERIA AND RESEARCH Related Criteria Banks: Rating Methodology And Assumptions, Nov. 9, 2011 Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011 Related Research Banking Industry Country Risk Assessment: Qatar, May 7, 2014 Under Standard & Poor's policies, only a Rating Committee can determine a Credit Rating Action (including a Credit Rating change, affirmation or withdrawal, Rating Outlook change, or CreditWatch action). This commentary and its subject matter have not been the subject of Rating Committee action and should not be interpreted as a change to, or affirmation of, a Credit Rating or Rating Outlook. Additional Contact: Financial Institutions Ratings Europe; FIG_Europe@standardandpoors.com WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 7, 2014 2 1312369 | 302218800 Report Highlights Qatari Banks' Expected Robust Profitability In 2014 Despite Risks The reports are available to subscribers of RatingsDirect at www.globalcreditportal.com and at www.spcapitaliq.com. If you are not a RatingsDirect subscriber, you may purchase copies of these reports by calling (1) 212-438-7280 or sending an e-mail to research_request@standardandpoors.com. Ratings information can also be found on Standard & Poor's public Web site by using the Ratings search box located in the left column at www.standardandpoors.com. Alternatively, call one of the following Standard & Poor's numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow (7) 495-783-4009. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 7, 2014 3 1312369 | 302218800 Report Highlights Qatari Banks' Expected Robust Profitability In 2014 Despite Risks S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription) and www.spcapitaliq.com (subscription) and may be distributed through other means, including via S&P publications and third-party redistributors. 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