Moody’s downgrades Qatari banks outlook to negative

CAIRO - 8 August 2017: Moody's Investors Service downgraded the outlook on Qatar's banking system to negative from stable, the international rating agency said Tuesday.

Coming as a result of the weakening operating conditions and continued funding pressures facing Qatari banks, the outlook represents Moody’s expectation of how bank creditworthiness will evolve in Qatar over the next 12-18 months.

"Qatari banks' reliance on confidence-sensitive external funding has increased in recent years due to a significant decline in oil-related revenues" said Nitish Bhojnagarwala, a vice president at Moody's. "This leaves them vulnerable to shifts in investor sentiment."

Moody's expects Qatar's GDP growth to slow to 2.4 percent in 2017 from exceptionally high rates of around 13.3 percent recorded during the 2006-2014 period; however, it remains the highest in the GCC, driven by high levels of government spending in preparation for the FIFA World Cup in 2022.

As a result, domestic credit growth will also slow to the five – seven percent range for 2017 and 2018, down from 15 percent in 2015, Moody’s stated.

"We expect system-wide problem loans to increase to around 2.2 percent of gross loans by 2018, up from 1.7 percent as of December 2016", Bhojnagarwala said.

"Against this backdrop, Qatari banks' profitability will likely decline, with return-on-assets declining to around 1.4 percent for 2017, from 1.6 percent in 2016, driven by increases in funding and provisioning costs," Bhojnagarwala added.