Qatar’s banking system remains resilient on flexible QCB regulations: IIF

Strong initial capital and liquidity positions and a flexible response from the Qatar Central Bank (QCB) have helped Qatar’s banking system remain “resilient”, according to the Washington-based Institute of International Finance (IIF). .
“The banking system remained relatively resilient amid the pandemic, helped by strong initial capital and liquidity positions,” it said in a report.
Banks remain adequately capitalized with a Tier 1 capital ratio of 17.6% and a low non-performing loan (NPL) ratio of 2% in 2020, he said.
Indicating a strong financial foundation, the country’s banking sector has witnessed a gradual improvement in the ratio of Tier I capital to risk-weighted assets, from 15.7% in 2016 to 16.5% in 2017, 17% in 2018 and 17.5% in 2019.
NPLs stood at 1.3% in 2016, 1.6% in 2017, 1.9% in 2018 and 1.8% in 2019, the IIF said, citing QCB estimates.
Provisions for bad debts followed a rocky trajectory, rising from 79.9% in 2016 to 83.2% in 2017, but decreasing to 75.8% in 2018, then rising to 81.9% in 2019 and to 83.8% in 2020.
The IIF report indicates that liquid assets represented 28% of total assets and 67% of total liabilities in 2020.
Noting that financial support programs have been essential to support business credit; he said the QCB has kept a low policy rate in line with the US Federal Reserve amid the currency peg.
“Monetary policy will remain accommodative as Qatar follows US monetary policy given the dollar peg,” the report said.
The QCB also provided liquidity to local banks through a special zero interest rate window, he said, adding “given the lingering impact of the pandemic, the QCB is sorely avoiding appropriate a premature abolition of these measures”.
“Once the forbearance is lifted by the QCB, we could see a slight deterioration in asset quality or a higher non-performing loan ratio,” he said.
Funding and liquidity will improve this year, supported by the positive environment in the Gulf Cooperation Council region, which should diversify the funding base of Qatari banks and reduce funding costs.
Qatari banks are heavily dependent on deposits from non-residents (QR 266.24 billion), which accounted for 28% of total deposits in March 2021. Total commercial bank non-resident deposits recorded a growth of 5 .5% month-on-month in March. this year, the IIR said.

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