Interview: Abdulla Mubarak Al Khalifa
How has the banking sector in Qatar evolved in recent years, and what do you see as the primary market drivers in the short to medium term?
ABDULLA MUBARAK AL KHALIFA: Qatar’s banking system is healthy, robust and offers medium- and long-term growth opportunities. There are several figures that highlight this, including the sector’s capital adequacy ratio of 18.8% at the end of 2020 – well above Basel III guidelines. Asset quality remained strong, with non-performing loans accounting for 2% of the total value that year. Overall profitability was also solid, with return on equity (ROE) reaching 13.7% in 2020, marked by high efficiency.
A rise in domestic credit facilities and investment will support asset and loan growth over the medium term, while asset quality will remain strong due to the improving economic environment and the large proportion of low-risk loans to the government. Furthermore, low provisioning requirements and efficient cost bases will continue to support banks’ profitability. Lastly, strong supervision by the Qatar Central Bank and prudent lending policies will ensure that the banking sector remains strong into the future.
As a result of the pandemic, financial technology (fintech) and non-bank payment providers began to play a more dominant role in meeting customer needs. They have also become part of the services and e-commerce-related value and supply chain within the country – a trend that is likely to continue. The pandemic also accelerated the focus on sustainability, with investors and other stakeholders placing greater emphasis on environmental, social and governance criteria. Qatar has undertaken several initiatives in the last few years to nurture a green economy. QNB and other domestic banks now issue green bonds, and offer green loans and mortgages as part of a broader push mirrored across the country to adopt sustainability in business practices. It is expected that banks will benefit from taking on a leadership role among their counterparts in the region by facilitating progress in this important area.
What role can the financial sector play in large-scale infrastructure development?
AL KHALIFA: Qatar has one of the world’s largest reserves of natural gas, and is the leading exporter of liquefied natural gas (LNG). The country decided to maintain its position by expanding the North Field – the world’s largest non-associated gas field. The project is an opportunity for banks to serve as financial partners and support large-scale infrastructure development.
This expansion will consist of six new LNG trains and boost Qatar’s LNG production by 64%, to 126m tonnes per annum. In addition to financing LNG mega-trains, banks finance wells, pipelines, LNG storage tanks and new LNG tankers. Banks also have an opportunity to participate in the expansion of Qatar’s refining and downstream capacity by financing plants for liquefied petroleum gas, helium and related petrochemicals.
By what means can GCC banks facilitate profitability and sustainable growth in the post-pandemic era?
AL KHALIFA: Tier-1 banks in the Gulf are characterised by their robust levels of capitalisation and investment-grade ratings, which are a testament to their prudent risk management framework. They also have efficient operating models, with cost-to-income ratios largely below 40%. These institutions rely on net interest income for profitability, which opens an opportunity to diversify the income base away from pure balance sheet lending. This can be achieved by putting more emphasis on balance sheet-light and high ROE-driven income sources, including trade and cash management, asset management and private banking.
Driving sustainable growth in the post-pandemic era could also entail challenging the status quo. Indeed, it will be necessary to future-proof the banking sector. Changes in the regulatory landscape and customer behaviour, as well as the emergence of competitors from the fintech and non-bank financial ecosystems, are increasingly challenging how banks operate.
Read More from OBG
