QNBFS ‘cautiously optimistic’ on Qatar bank sector in 2013

By Santhosh V Perumal/Business Reporter

QNB Financial Services (QNBFS) is “cautiously optimistic” on Qatar’s banking sector, which is expected to witness a 15%-20% loan growth and a 9.9% in aggregate net income this year; even as net interest margins are slated to see a 10 basis points fall.

While 2012 was a subdued year for most banks (the banking index fell 1.3% against a 4.6% gain in the benchmark QE index), “we believe 2013 could be brighter”, QNBFS said in its inaugural quarterly coverage on the country’s banking sector.

However, it said “we are cautiously optimistic on the Qatari banking sector in 2013.”

Credit growth will remain robust (15% to 20% in 2013 compared to 26.4% in 2012) but will be “hampered” by competitive intensity in the first half of this year. Hence, margins are likely to remain under “pressure” during the review period.

“Going forward, in 2014 and 2015, we expect better visibility on project executions to lead to strong loan book growth; we expect the loan book to increase by 15% (high base effect) in 2014 and 2015,” it said.

Highlighting that the attractive dividend yield story remains intact; the report said Qatari banking stocks offered investors attractive cash dividends with yields in excess of 6% for most banks under its coverage.

“The attractive dividend yield is complemented with a potential growth angle stemming from the expected Qatari infrastructure boom,” it said, adding many infrastructure projects outlined within national development strategy 2011-16 are already underway.

The largest is the metro and rail project and with an estimated cost in excess of $35bn it is showing signs of pickup in activity. Meed Projects expects an up-tick in project awards to around $25bn in 2013 versus a maximum of around $14.5bn in 2012.

“We are of the view that Qatar remains deeply committed to the 2022 World Cup, which remains an important milestone in Qatar’s vision for 2030. Thus, we remain optimistic about project award-related news flow in 2013,” QNBFS said.

However, the report observed that investor optimism regarding the speedy implementation of proposed projects post Qatar’s appointment as the host of the 2022 World Cup was “dampened” by on-the-ground activity, which has been subdued and “in our view, realistic in light of the scale and longer-term importance of these proposed projects.”

“However, activity is anticipated to pick-up in the second half of 2013 as contracts are awarded, leading to loan growth in the public sector with the private sector following suit,” QNBFS said.

The report said Qatari banks are also eying regional expansions to augment their long-term growth story with QNB acquiring National Societe General Egypt. Following suit, Commercialbank announced acquisition of Alternatifbank (a Turkish bank) and Masraf Al Rayan has expressed interest in acquiring a Libyan bank.

“Given the trend, it is probable that other local lenders might pursue regional growth through acquisitions. In our view, merges and acquisitions can entice investors to the sector,” it said.

QNBFS also highlighted a “growing concern” among investors that some mid-cap banks would need to raise additional capital to maintain higher Tier-1 capital ratios. This assumption has led to depressed price activity in some bank stocks.

“We believe Qatari banks are well capitalised (much higher relative to requirements). Furthermore, recent trends show that banks that went for capital increase witnessed price appreciation and greater activity,” it said.