05/03/2015 06:45 AST
The fall in oil prices has had “limited impact” on Qatar’s financial sector, said HE the Qatar Central Bank Governor, Sheikh Abdullah bin Saoud al-Thani.
Total assets of the banking system continued to grow robustly at around 5% in the second half of 2014. The growth has been driven by credit to the private sector and rise in Islamic finance.
At end-December 2014, the banking system remains well-capitalised and profitable. In fact, credit quality has improved, with Tier I capital ratio well above the regulatory minimum required under the Basel III framework and the NPL ratio falling, while remaining below 2%.
Profitability levels also remain high, with return on assets in excess of 2%, which reflects an improvement during the second half of the year.
“Thus, the banking sector continues to be resilient and robust despite the fall in global oil prices and associated uncertainties, reflecting strong macroeconomic performance and sound policies,” he told the Meed.
Although, the performance of the oil companies could have direct impact on the financial sector, as lower have some revenue may reflect on the extent of leveraging, oil companies have generated large surpluses in recent years and their dependence on bank borrowings have been low.
Therefore, it is expected that the impact on the assets of the banks will be minimal. Nevertheless, if the low oil prices are sustained in the long-run, the financial sector could be affected by low deposit growth and tighter liquidity.
On the other hand, credit growth in the financial sector is now supported by a growing non-hydrocarbon sector which could well offset the adverse impact expected from the hydrocarbon sector. In fact, significant progress has been made under the Strategic Plan for the financial sector to develop a diversified and more resilient economy, which will have lesser reliance on hydrocarbon revenues.
“Finally, our preparations for the World Cup 2022 and other large infrastructure projects are expected to sustain the strong growth of the economy which would, in turn, support the health of the financial sector,” Sheikh Abdullah said.
Asked how the market sustained so many projects without overheating, he said, “Qatar has maintained strong GDP growth at about 6% over the past two years, driven by double digit growth in the non-hydrocarbon sector, reflecting the ongoing diversification strategy.
The large public investment spending to diversify the economy and prepare for the FIFA World Cup 2022, in turn, has resulted in significant inflow of expatriate population. While this has added to aggregate demand and thereby has supported growth, it has also boosted housing demand and thereby rental prices.
However, moderation in domestic prices of food amid falling global commodity prices and some services (medical care and entertainment and recreation) has helped in containing overall inflation to 2.7% in December 2014.
In addition, the budget continues to post surpluses despite the sharp fall in oil prices and growth is expected to accelerate in 2015, reflecting solid expansion in non-hydrocarbon activities propelled by investment spending, expansionary fiscal stance and population growth.
QCB, he said, on its part is actively managing systemic liquidity through auctions of T-bills/bonds to ensure that monetary and liquidity conditions remain consistent with growth and price stability.
“At the same time, QCB is closely monitoring emerging risks to the financial system, in particular with respect to inflation and real estate sector risks, and implementing macro-prudential measures to ensure financial stability.
Mindful of the risks associated with the public investment programme, including related financial sector vulnerabilities, the Ministry of Finance has taken steps to prioritise public investment while raising its efficiency.
Gulf Times
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