Higher credit offtake signifies 'positive outlook' on Qatari economy, rising consumer confidence

Qatari banks have seen a year-on-year increase in domestic credit disbursement by 6.9% to reach QR1.3tn in November 2024, key indicators provided by the Qatar Central Bank have shown.

An increase in total domestic credit for banks generally means that the banks are lending more money to businesses, individuals, and the government sector within Qatar.

“Higher demand for credit signifies a positive outlook on the Qatari economy and rising consumer confidence,” an analyst told Gulf Times on Sunday.

“Increased lending often signifies that businesses and individuals are borrowing to invest in projects, expansion, or consumption, which can stimulate economic growth. It also indicates that consumers and businesses are confident about the future, hence willing to take on more debt,” he noted.

Bank credit has become attractive for both businesses and individuals with rates falling and expected to fall further this year.

On December 18 last year, the QCB decided to reduce the interest rates for deposits, lending and repo by 0.30% or 30 basis points (bps).

The new rates took effect on December 22.

The QCB's deposit rate (QCBDR) is now 4.60%, lending rate (QCBLR) 5.10% and the repo rate (QCBRR) is 4.85%.

Explaining the rate reduction, the QCB said the cut followed its “assessment of the current monetary policy” of the State of Qatar.

Top officials at the US Federal Reserve have predicted that they will cut rates to 3.9% this year in their fresh economic estimates.

Since Qatari riyal is pegged to the dollar, the QCB rates are also expected to follow suit.

QCB data also show an increase in broad money supply (M2) by 2.5% to QR735.5bn year-on-year in November last year.

Broad money supply (M2) includes cash, checking deposits, and easily convertible near money like savings deposits, money market securities, and other time deposits.

An increased money supply has seen stimulating economic activity by making more funds available for businesses and consumers to borrow and spend, which then boosts overall economic growth.

With more money in circulation, there may be more investment in various sectors, leading to potential economic expansion and development.

According to the QCB, total domestic deposits with local banks increased by 5.6% (year-on-year in November 2024) to QR843.8bn.

Analysts say higher level of deposits obviously strengthens the banking sector, as banks have more reserves to cover withdrawals and invest in opportunities.

With more deposits, banks have more money to lend, which automatically boosts economic activities such as business expansion, consumer spending, and infrastructure projects.

“More deposits indicate public confidence in the financial system, which is essential for the smooth functioning of the economy,” the analyst said.

The total assets of local (commercial) banks have increased 4.3% (year-on-year in November 2024) to QR2tn, the QCB’s latest banking sector indicators show.

Higher assets indicate that banks are growing and managing more resources, which enhance their stability and reliability.

More assets allow banks to extend more loans to businesses and consumers, fuelling economic growth through investments and consumption.

It clearly suggests that both domestic and foreign investors have confidence in Qatar’s financial system, leading to increased capital inflows.