The Qatar Banking Sector report 2023 details the differing impact that the changing economic environment has had on banks in the country.
The report provides a unique and insightful snapshot on the banking sector in Qatar, zooming in on sector performance across key metrics such as asset growth, revenue and margins dynamics, changes in cost of risk, efficiency and returns. It also takes a deep dive into liquidity risk and its impact on sector performance.
The report also looks forward to 2024 and beyond, setting out our forecasts and predictions for the banking sector in Qatar.
Click Here: to read the report in full
2022 Financial sector performance
The financial sector in Qatar is expected to face some challenges in a post-World Cup and post-pandemic environment, but there are also some opportunities that could help it grow and develop. The long-term outlook for the sector is positive, but there will likely be some short- to mid-term volatility.
Balances
Banks’ balances highlight growth across key financial indicators. Assets increased by 3.6%, reflecting expansion in the banks’ overall holdings. Gross loans and advances grew by 3.3%, indicating increased lending activities. Deposits rose by 2.7%, showcasing continued inflow of customer funds but at a slower pace than assets, due to remaining economic uncertainty and post-World Cup growth trajectory.
Stability
The stability of the sector presents a mixed picture. The average loans-to-deposits ratio remained stable while non-performing loans increased by almost 29%, signaling an increase in distressed portfolios due to realisation of corporate defaults previously suspended by COVID-19 relief measures and a stricter approach to loan restructuring and rescheduling. The capital adequacy position remained strong though more vulnerable to potential liquidity shock, which is reflected in the short-term liquidity buffer.
Earnings
Gross income surged by 25.6% due to rapidly rising interest rates, which most of the banks have been able to capitalise upon. Operating income & Profit Before Tax increased by 18.1% and 20.2% respectively, showing improved operational efficiency as revenue growth has only been partially offset by repriced liabilities.
Profitability
System-wide margins, including net interest margin and returns on average assets and equity remained flat, though individual banks’ performance has been highly disparate: those who managed to quickly turnaround & reprice their books received substantial benefits while others suffered margin compression and cost of risk hits.
Click Here: to learn more about 2022 Financial sector performance
Forward looking trends and response strategies
In our 2022 edition we highlighted six key trends. In our latest report, we have explored how these trends developed over the last year and which had the most impact. In addition, we have identified a seventh and new theme: emergence of non-traditional risks.
Qatar's banking sector has made significant strides in enhancing customer experience and embracing digital innovation, particularly during the FIFA World Cup 2022. By prioritising customer-centric approaches and digital innovation, banks in the country have solidified their positions as removed the word market leaders in digital development.
The integration of open banking platforms, strategic partnerships with FinTech companies and sustainable investments have further strengthened their positions. The country recognises the potential of FinTech and has established initiatives to foster a strong and sustainable FinTech ecosystem.
While challenges remain in managing emerging risks, Qatar is strategically positioning itself as a leading FinTech hub in the Middle East and a pioneer in digital transformation and sustainability within the financial services sector.
Banks in Qatar have made significant advancements in customer experience and digital innovation, particularly during the FIFA World Cup 2022. Embracing open banking, they seek to offer an enhanced banking experience to customers and partners, facilitating seamless data and payment sharing.
Qatari banks have embraced ESG (Environmental, Social, and Governance) practices and are adopting sustainability measures.
Leading banks have integrated ESG factors into their strategies and reporting, aligning with global frameworks and supporting green financing and social inclusion. Despite challenges, banks aim to build a sustainable future through technology and data governance.
The government's emphasis on environmental impact during the FIFA World Cup 2022 has led to strategic partnerships for sustainable finance initiatives. However, widespread ESG implementation is still evolving in the market and climate risk management will still be a challenge for most of the Banks.
As the financial services landscape evolves with the emergence of alternative players such as FinTech, telecommunications, retail, e-commerce, and big tech companies, traditional banks have two choices: engage in fierce competition or leverage it by adopting a strategic partnership approach. This will create new strategic alliances in the banking sector.
Qatar's digital transformation is making considerable progress towards achieving its National Vision 2030 of building a digital economy.
Strategic initiatives like the Doha cloud region by Google Cloud and the implementation of OpenAI's GPT technology in the Azure Qatar Cloud are expected to empower Qatari companies with long-term benefits.
However, while embracing emerging technologies, banks must also consider risk mitigation and regulatory policies for successful implementation.
Not yet legalised in many countries in the Middle East, including Qatar, cryptocurrencies face regulatory challenges.
In addition, efforts to combat money laundering and terrorist financing require strong controls, advanced analysis capabilities, and continuous training for authorities to establish a robust regulatory framework. That being said, Qatar performed strongly in the recent FATF (Financial Action Task Force) country review.
In the MENA (Middle East and North Africa) region, including Qatar, supervisory efforts focused on core banking activities, with initiatives aimed at customer and data protection, data infrastructure establishment, and promoting ESG practices.
Qatar's regulators took proactive steps to strengthen the financial system and launched initiatives for sustainable finance, green finance, and FinTech development.
We are expecting further execution guidelines to be issued in the digital banking and FinTech areas.
Qatari banks have historically excelled in managing traditional credit risks, but they face challenges in effectively managing emerging non-traditional risks such as liquidity, cyber, and operational risks.
To address these challenges, there is a need to implement necessary tools for controlling and mitigating these risks.
We believe these new trends will shape future direction and thinking in the banking sector and we are excited to witness how the system adapts and responds to new challenges.
Click Here: learn more about forward-looking trends and response strategies.
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