According to Fitch's Qatar Banking System and Prudential Ratings, "Qatari banks continue to show strong profitability, healthy asset quality and good capital adequacy ratios. This picture is unlikely to change significantly in the short-term given the current benign regional conditions."
The International Monetary Fund (IMF) has assigned a "very favourable" medium-term outlook for the country, which comes on the heels of Standard & Poor's recent upgrade of Qatar's long-term foreign sovereign rating to AA-, from BBB in 1996. The agency cited strong economic prospects and acceleration of reforms. All of this is building confidence in Qatar's financial systems and further growth is expected, with the IMF projecting the country's real GDP growth to average more than 12% a year until 2012. The IMF said the country is likely to see a 12.5% rise in per capita GDP for 2007 to $70,754 up from its 2006 estimate of $62,914.
The IMF said it expected the main drivers of growth in 2008 to be in oil and gas, petrochemicals and financial and educational services. However, the agency cautioned that continued good performance depended on the country's ability to maintain financial and macroeconomic stability.
Qatar is making significant progress to ensure financial stability through various initiatives, such as the implementation of Basel II. These are recommendations regarding banking laws and regulations that were issued by the Basel Committee on Banking Supervision. Initially published in June 2004, the accord is intended to guide the creation of international standards for banking regulation pertaining to the amount of capital that should be reserved as a guard against operational and financial risks.
Last year, the Qatar Central Bank (QCB) implemented the Basel II recommendations to revise the international standards for measuring the adequacy of a bank's capital throughout the country's banking system. The move should help protect against fallout in the event of the collapse of a major bank or the event of a series of international banks collapsing.
By implementing Basel II, QCB aims to set up rigorous risk and capital management requirements to ensure that banks hold capital reserves appropriate to the risk the bank exposes itself to through its lending and investment practices.
In addition to implementing the Basel II recommendations, the central bank aims to set benchmarks to gauge the country's financial health and stability.
The IMF supports plans for the QCB to establish a statistical database to inform policy-making, develop leading macroeconomic indicators and design early warning systems. These steps should further improve the foundation of the Qatari economy especially in terms of financial stability and macroeconomic strength.
The Fitch report said Qatari banks have so far maintained satisfactory asset quality ratios and added that good impairment allowances and sound capitalisation should help in the event there is a deterioration in asset quality. However, the IMF noted the market remains prone to regional market volatility and political issues. Local markets could face "a possible regional property market bubble" in light of the continuing growth in credit to the private sector, which was estimated at 50% in 2007.
Apart from the note of caution regarding inflation, the IMF said Qatar's economic performance was strong in 2007, supported by high oil and gas prices and ongoing investments. The agency said the external current account surplus is projected at 33% of GDP, despite strong import growth of 30%, mainly due to investment projects.