(MENAFN- Gulf Times) Qatari banks' domestic credit growth may average 17% up to 2017, propelled by the main beneficiaries of the government's ongoing investment drive, shows a new report.
The country's total domestic credit growth ticked up to 12.4% in the 12 months to September, while deposit growth reached 12.6%, said Samba Financial Group in its latest economic monitor.
The loan/deposit ratio remained below 1, but climbed to 96% from 93.4% in August. NPLs remain low, at just under 2% in September.
The pace of credit growth continued its upward trend after a month-on-month contraction in July, in part due to the disruptions caused by Ramadan. Following this summer hiatus, Samba expects faster expansion of the loan book, propelled by the main beneficiaries of the government's ongoing investment drive.
The composition of credit was still dominated by lending to the public sector, which represented 42% of the total. The next biggest recipient was consumption at 16% and then real estate at 15%, Samba said.
Lending to contractors was the fastest growing sector, up 42% year-on-year (albeit from a small base).
Deposit growth has been strong and provides a solid foundation for the banking sector to take advantage of a host of lending opportunities over the next few years, Samba said.
The report also noted the recent drop in oil prices has further validated Qatar's long-term vision for a diversified economy. The fall still leaves prices well above the estimated breakeven for the twin surpluses ($58 a barrel for fiscal and $56 for external).
Although hydrocarbon receipts continue to churn out both external and fiscal surpluses, the softness in the oil price has clipped Samba's projections through to 2016.
The current account continued to post a healthy surplus in the first half 2014, amounting to 30.4% of the GDP.
"We foresee stronger import growth due to increasing investment, and a weaker oil price reducing the size of the surplus in the second half of this year and throughout next. To this end, we forecast an external surplus of 25.9% this year, and 21.3% in 2015," Samba said.
"It is a similar story for public finances", the report said and noted that with an expansionary fiscal policy and anticipated weaker hydrocarbons prices cutting the surplus to 7.7% of GDP in 2014 and 4.7% in 2015. The International Monetary Fund's article IV noted that Qatar's government spending policies were "consistent with intergenerational equity", meaning that it is saving the appropriate amount for future generations.
However, if hydrocarbon prices were to surprise on the downside, additional measures to contain current spending and prioritise capital should be taken. This could present a task for the authorities as Samba forecasts current spending to increase by 22% both this year and in 2015.
A more quantitative metric for a diversified economy, as outlined by Qatar's General Secretariat for Development Planning, is to fully finance the budget through non-hydrocarbon revenues. The non-hydrocarbon fiscal balance as a percentage of non-hydrocarbon GDP is expected to decline from 46% of GDP at present to 29% in 2019.
The IMF cites that they are happy with the progress in this regard and warn against reaching the target too hastily as it may limit growth capacity, Samba noted.
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