Qatar banks are expected to see improvement in bottom-line, and return on assets should reach pre-Covid levels by 2023, according to a top official of Moody's, a credit rating agency.
"We expect the banks' bottom-line profitability to continue to improve in 2022 as operating income continues to grow, while provisioning charges should stabilise," Nitish Bhojnagarwala, vice president, senior credit officer, Moody's told a roundtable on Monday.
Net profit of the Qatari banks rose 4% year-on-year in the first half of 2022, driven by widening net interest margins and higher noninterest income. The Qatari banks Moody's rates reported an aggregate net profit of QR12.9bn in the review period.
The one-off accounting adjustment on hyperinflation in Turkiye, where QNB and Commercial Bank had exposure, had lowered the Qatari banks profitability by QR813mn. Had it not been for the adjustment, Qatar's banks’ bottom-line would have seen an 11% growth in the first half of 2022, he said.
The growth in net profit was consistent across the banks with the exception of one bank, and largely driven by an 11% increase in net interest income and 8% growth in noninterest income such as fees and commissions.
Highlighting that the banks maintained their capital buffers during the year, supported by strong earnings and solid profit retention, it said their combined tangible common equity marginally increased to 15.4% of risk-weighted assets as of June 2022 from 15.3% a year earlier. "We expect solid profitability to continue to support healthy capital buffers," he added.
Expecting Qatar's real gross domestic product or GDP to grow by 2.7% in 2022 (2.4% in 2023) after contracting by 3.6% in 2020; Bhojnagarwala said the recovery this year will be supported by projects and spending linked to the gradual increase in hydrocarbon production, higher oil prices and robust non-hydrocarbon economic activity following a relaxation of travel and restriction of movement measures imposed at the height of the pandemic, and tourism activity related to the 2022 FIFA World Cup.
Higher net interest margins or NIMs were driven by asset yields, which rose as interest rates reset during the first half of the year and offset some of the increase in funding costs, he said, adding the funding composition of Qatari banks has shifted, with an increasing reliance on external funding, mostly driven by larger banks.
"We expect benchmark interest rates to rise this year, combined with increased lending volumes on the back of robust economic growth, to support Qatari banks' net interest income over the next 12-18 months," he said, adding “a little more bottom-line growth and returns should reach pre-Covid levels, hopefully by next year.”
The banks continued to improve their operating efficiency in the first half of the year as income growth surpassed growth in expenses, easing pressure on their bottom-line profit. While the benefits of the cost control measures initiated during the pandemic accrued fully in 2021, aggregate operating expenses for the Qatari banking sector increased by 1% during the current period.
"We expect the banks' bottom-line profitability to continue to improve in 2022 as operating income continues to grow, while provisioning charges should stabilise," Nitish Bhojnagarwala, vice president, senior credit officer, Moody's told a roundtable on Monday.Net profit of the Qatari banks rose 4% year-on-year in the first half of 2022, driven by widening net interest margins and higher noninterest income. The Qatari banks Moody's rates reported an aggregate net profit of QR12.9bn in the review period.
The one-off accounting adjustment on hyperinflation in Turkiye, where QNB and Commercial Bank had exposure, had lowered the Qatari banks profitability by QR813mn. Had it not been for the adjustment, Qatar's banks’ bottom-line would have seen an 11% growth in the first half of 2022, he said.
The growth in net profit was consistent across the banks with the exception of one bank, and largely driven by an 11% increase in net interest income and 8% growth in noninterest income such as fees and commissions.
Highlighting that the banks maintained their capital buffers during the year, supported by strong earnings and solid profit retention, it said their combined tangible common equity marginally increased to 15.4% of risk-weighted assets as of June 2022 from 15.3% a year earlier. "We expect solid profitability to continue to support healthy capital buffers," he added.
Expecting Qatar's real gross domestic product or GDP to grow by 2.7% in 2022 (2.4% in 2023) after contracting by 3.6% in 2020; Bhojnagarwala said the recovery this year will be supported by projects and spending linked to the gradual increase in hydrocarbon production, higher oil prices and robust non-hydrocarbon economic activity following a relaxation of travel and restriction of movement measures imposed at the height of the pandemic, and tourism activity related to the 2022 FIFA World Cup.
Higher net interest margins or NIMs were driven by asset yields, which rose as interest rates reset during the first half of the year and offset some of the increase in funding costs, he said, adding the funding composition of Qatari banks has shifted, with an increasing reliance on external funding, mostly driven by larger banks.
"We expect benchmark interest rates to rise this year, combined with increased lending volumes on the back of robust economic growth, to support Qatari banks' net interest income over the next 12-18 months," he said, adding “a little more bottom-line growth and returns should reach pre-Covid levels, hopefully by next year.”
The banks continued to improve their operating efficiency in the first half of the year as income growth surpassed growth in expenses, easing pressure on their bottom-line profit. While the benefits of the cost control measures initiated during the pandemic accrued fully in 2021, aggregate operating expenses for the Qatari banking sector increased by 1% during the current period.