Qatar's financial sector appears to be well placed to ride out the global economic downturn, thanks to a combination of factors, including the sound state of the country's economy, prompt intervention by the state to support local banks and solid levels of liquidity.
On April 8, the country's biggest lender, Qatar National Bank (QNB) announced its results for the first quarter of the year, with net profits of $275m, a 10.2% increase on the opening three months of 2008. The bank also showed strong growth across its activities, with deposits up by 15.6%, value of assets rising by 8.2% and, crucially at a time when liquidity in many markets is tight, expanded its loan, financing and advances portfolio by 5.4%.
QNB's first-quarter result follows on from a strong showing in 2008, when it recorded record net profits of $1bn, up from $686m in 2007, a year-on-year increase of 45.7%. Overall, the financial services sector listed on the Doha Securities Market (DSM) turned in a solid performance last year, with net profits of $2.7bn reported for 2008 compared to the $2.2bn of the preceding year, according to a statement issued by the exchange at the beginning of April.
Those results buck the predicted trend for the region, with a report by the Kuwait Financial Centre issued in early April forecasting a sharp fall in net profits for lenders throughout the Gulf Cooperation Council zone due to zero growth in deposits and loans.
Some of that success has to be attributed to the overall strength of the Qatari economy. At a time when most countries are eyeing flat growth rates for 2009, if not outright contraction, Qatar is expecting to post one of the world's highest rates of expansion for the year, with the governor of the Central Bank, Sheikh Abdullah Saud Al Thani, saying on March 25 that the country's economy should grow by 7-9% this year. Though less than the 16% growth enjoyed in 2008, even the low end of that bracket would be welcome news for most economies.
While Qatar's banks and finance houses are weathering the global economic storm, they are also doing so with the backing of the state. In October, it was announced that the state's sovereign wealth fund, the Qatar Investment Authority, would make funds of up to $5.3bn available to acquire 10-20% of listed banks' capital and listed shares within banks' investment portfolios.
On March 20, Al Thani announced that the state had completed the purchase of $1.78bn worth of local bank investment portfolios listed on the DSM. Among the seven banks to benefit were the Commercialbank, which sold $257m of its equity portfolio to the government, and Doha Bank, selling off $147m worth of equities.
According to Andrew Stevens, the Commercialbank group CEO, the sale of the listed Qatar equity portfolio to the government "offers additional certainty and security in these challenging financial markets".
Samer Al Jaouni, the general manager at Middle East Financial Brokerage Company in Dubai, said the state intervention was a groundbreaking move.
"This is direct assistance from the state to the banks, the like of which we haven't seen in the region," Al Jaouni said in an interview with the Bloomberg news agency on March 22. "The move is allowing some banks and investors to wipe the slate clean."
Partly to fund its support package for the banks, at the beginning of April the government launched a $3bn bond issue in two tranches. One was a five-year $2bn bond maturing in April 9, 2014, and the other a 10-year $1bn bond maturing April 9, 2019. The funds are to be used to help finance the Qatari budget for the current year, including providing funding for state-owned or controlled entities, the launch prospectus said.
Both tranches were launched at rates above those of comparable US Treasury notes, with the five-year bond set at 340 basis points above the US yields and the ten-year note opened at 380 points up.
News of the issue was well received and, in a sign of confidence in the Qatari economy and its capital markets, ratings agency Standard & Poor's assigned the bond issue an "AA-" assessment. This was based on what the agency said were Qatar's, "healthy economic prospects driven largely by the gas industry, and high per-capita income".
Similarly, Moody's gave the issue an "Aa2" rating, saying that the decision was supported by the country's very high level of prosperity, the wide – albeit narrowing – external current account surplus, the government's strong balance sheet and the rapid expansion of gas exports, which would significantly boost government revenues over the coming years.
Not only will the bonds provide the government with further cash to pump into the economy as required, they will also provide a guide for other bond issues in the region.
"It sets a sovereign benchmark that local corporates and financials will be able to price against," Simon William, the chief economist at HSBC Middle East, told the Dow Jones news agency on April 4.
With the backing of the state, the prospect of the economy expanding and liquidity levels apparently assured, Qatar's banks should not only ride out the storm but also be in a position to enjoy some clear sailing long before their regional rivals.