Qatar- Commercial real estate payment delay to aggravate banks' woes

(MENAFN- The Peninsula)

By Satish Kanady

DOHA: Qatar banks’ exposure to commercial real estate sector is likely to lead to pickup in delinquencies a situation where borrowers are late or overdue on their payments to the banks. SICO (Securities and Investment Company) noted in its latest report that Qatari banks have significant exposure to the real estate and construction sector compared to other GCC economies.

Analysts noted sectors with high risk of payment default in Saudi Arabia are manufacturing and construction and UAE SMEs. Bahrain banks are more exposed to consumer and commerce sectors. With the deposit growth outpacing the lending growth Bahraini banks continued to lower their leverage in 2015 With low oil prices the government is likely to take tough measures leading to lower disposable income and risk of pick-up in retail and consumer sector related impaired loans.

The SICO does not expect any significant risk from the large UAE corporations defaulting at this stage due to lack of evidence of any major liquidity crunch. But banks with higher SME exposure are likely to witness higher delinquencies.

In Saudi there are deep concerns on construction and manufacturing sector exposure. The analysts expect payment delays which are likely to impact construction sector while weak oil and petrochemical sector are likely to impact the manufacturing sector.

The report that said there are signs of liquidity pressure for GCC banks noted the banks in the region are witnessing deposits outflow and pick-up in loans-to-deposits ratio. The banks are expected to report pick-up in funding costs in 2016 with rise in competition.. Banks with lower loans-to-deposits ratio are at an advantage going into 2016.

Funding costs are likely to rise in 2016 for most GCC banks. Government deposits witnessed an outflux in 2015. The pace is expected to accentuate in 2016. Loans to deposits ratio of GCC banks rose sharply in 2015 with Qatar rising the most.GCC Interbank rates are rising and their funding costs are likely to increase in H1 16.

On the crude oil and its fundamentals the SICO report said Price recovery in 2016 needs steeper supply decline. After declining 48 percent/35 percent/14 percent in 2014/15/16YTD respectively crude oil prices are expected to remain soft in 2016 due to a supply glut and lack of consensus among Opec countries on cutting production. Sequentially SICO is assuming 2016 quarterly prices of $35/40/40/45/bbl led by increase in demand (1.2mnbpdin2016vs1.6mnbpdin2015)which should decrease the current supply glut and bring market to balance by 2017.ArguablyBrent may struggle to regain $50/bbl by end-2016 unless we see a steepfall in non Opec output.”

According to SICO research note foreigners pulled out from most GCC equity markets in 2H15 except in Abu Dhabi which was mainly due to the inclusion of Etisalat in the MSCIEM Index in November 2015.

Negative market sentiment and persisting low crude prices pushed foreign investors away from Tadawul despite the market opening up to direct foreign investment in June 2015. Net foreign outflow reached $1bn in 2015 vs 0.01mn net inflow in 2014.

In 2015 Qatar market’s foreign investment inflow declined to $0.16bn vs an inflow of $2.13bn a year earlier. The market saw an net outflow in H2 15 of 0.22bn vs a net inflow of $0.39bn in H1 15.

The Peninsula