Qatar banks exhibit sufficient profitability, robust capital strength: EY
Qatar - Banks in Qatar exhibit sufficient profitability and robust capital strength, with both Tier 1 and capital adequacy ratio (CAR) surpassing the mandated regulatory thresholds, a report by EY has shown.
Domestic funding avenues are predicted to adequately finance credit expansion in Qatar this year with the completion of major infrastructure projects and increased liquefied natural gas (LNG) production, 'EY GCC Banking Sector Outlook 2024 report' said.
'The expansion of gas production in Qatar will underpin the resilience of local banks this year,' it said.
According to the report, GCC banks will continue to benefit from strong capital levels, supporting their overall performance in 2025. Credit growth in most GCC countries is broadly based on a strong project pipeline, with aggregate contract awards driven by infrastructure development, especially in Saudi Arabia and the UAE.
The positive trajectory is expected to continue in the near future. This outlook is supported by rising lending volumes, increased fee income, stable margins and effective cost management. As the cost of lending turns more favorable, GCC countries might expand their investments globally.
EY MENA Financial Services leader Mayur Pau noted, 'As we go into the first quarter of 2025, the GCC banking industry should remain strong due to considerable capital cushions, healthy asset quality indicators and adequate profitability. Furthermore, resilient economies, the region's economic diversification efforts and enabling policies will support higher consumption and investment, further boosting the sector's performance.
'The upcoming financial year looks to be a transformative period, with advancements in technology, shifts in consumer behavior and regulatory changes shaping the future of banking.'
Non-oil growth remains a bright spot: GDP growth in the GCC is projected at 3.5% in 2025. Interest rate cuts, together with further investment and structural reform initiatives, will mean non-oil growth of over 3.4% in the region's two largest economies – Saudi Arabia and the UAE.
As per the International Monetary Fund (IMF), the current account surplus is expected to be 8.2% of the GDP in 2025. On the fiscal front, a surplus of 3.9% of the GDP is forecast for 2025.
Global oil demand is forecasted to increase by 1.6mn bpd to 104.5mn bpd in 2025, reflecting the end of the post-Covid-19 pandemic release of pent-up demand, challenging global economic conditions and clean energy technology deployment.
Non-OPEC+ producers are likely to account for the bulk of the increase if OPEC+ voluntary cuts remain in place. High oil prices – with the average for 2024 estimated at $81 per barrel – and favorable economic growth have supported the GCC banks' healthy finances.
GDP growth in the GCC is forecast to rebound to 3.5% in 2024, up from 1.4%, as oil production gradually increases, providing a boost to the region's economies, EY said.
Hydrocarbon growth is likely to be 3.3%, while non-hydrocarbon sectors are forecast to grow at 3.4%, supported by strong domestic investment momentum.
GCC banks have shown sustained growth in credit facilities during 2024, supported by economic transformation plans, robust project pipeline, healthy demand and resilient economic conditions. The banks are well-capitalised with strong asset quality indicator and are likely to uphold this strong performance trajectory throughout 2025.
'To fortify their profitability and improve cost optimisation in the current landscape, GCC banks should consider how to best to navigate a new normal that not only addresses regulatory fragmentation and national interests, but fully harnesses the power of technology and its multiple scopes such as digitisation, generative AI (GenAI), open banking and APIs, and the digital currency revolution – all while committing to a sustainable future. This will ensure they remain competitive and agile to better counteract the pressure of contracting margins,' Pau said.
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