DOHA: The significant drop in oil prices could lead to higher credit losses and lower liquidity for banking systems in Qatar. Exposure to government and its related entities is significant in some of the GCC countries and particularly Qatar, Standard & Poor’s Ratings Services (S&P) noted.
The S&P said yesterday that almost one third of Qatar’s banking system’s loan portfolio is exposed to government and its related entities as of November 2014.
In most of the oil-exporting countries, government spending and investment projects remain among the main generators of economic growth and opportunities for the banking system. That is particularly true for the GCC countries, where government investments account for a large share of total investments.
S&P believes the most vulnerable banking systems are in Bahrain and Oman, whose economies are highly dependent on oil and the budget breakeven prices is significant. “But on a positive note , we think both countries will benefit from disbursements from the GCC development and Fund providing $10bn to each country over a 10-year period, which would offset any capital expenditure cuts and act as a key growth contributor”.
Fiscal buffers accumulated over the past years, as well as investment projects that are part of strategic initiatives, such as Qatar World Cup 2022 and Dubai Expo 2020, are also likely to remain insulated from the mounting pressure on government budgets.
S&P believes low oil prices will result in decreased government revenues and exports, and will hamper banking systems’ liquidity. Government deposits account for 28 percent on average of total bank deposits for the 10 oil-exporting countries-the six GCC countries plus Brunei, Kazakhstan, Malaysia, and Nigeria.
“In our view, the low loan-to-deposit ratio and strong net external creditor position of the Brunei banking system mitigates such risks. Banks in Qatar, Oman and UAE display significant concentration in their funding profiles, with around 30 percent -40 percent of deposits coming from government and its related entities. Nigerian bank’s funding profile is moderately concentrated, with around 15 percent of deposits coming from the oil sector and 20 percent from government.”
Following the significant drop in oil prices over the past few months, S&P has revised its price assumptions. “We now expect Brent’s price to stabilize around $55/bbl in 2015 and increase slightly to around $65/bbl in 2016. “While our base-case scenario assumes this drop will not significantly affect the performance of oil-exporting countries’ banking systems, a few of them could suffer higher credit losses and lower liquidity.” The Peninsula
