The cross border asset of Qatar’s banking sector grew substantially by 23.2 percent in 2016, with a major contribution by assets maintained with foreign financial institutions (FFIs). Considerable growth was observed in investment assets abroad, the majority of which are in the nature of equity investment in subsidiaries and associates.
Along with asset, cross border liabilities also posted a significant growth. In fact, the pace of growth in cross border liabilities was almost doubles that of assets.
Substantial growth in cross border deposits contributed to this growth. Liabilities on account of other long term external borrowing also registered considerable growth. Even though liabilities to foreign financial institution grew considerably, its share to total banking sector asset remained at comfortable levels, Qatar Central Bank (QCB), noted in its latest Financial Stability Report.
The QCB observed that the high growth in cross border deposits needs to be cautiously monitored.
However, given then high net Stable Funding ratio (NSFR) and Liquidity Coverage Ratio (LCR) of the banking sector, liquidity risk from the cross border funding is expected to be limited in the near to medium term.
Geographical distribution of cross border assets shows that more than half of the total earning assets is with GCC countries and Europe. Significant amount of such asset are with ‘other Mena’ countries.
Credit to ‘other Mena’ region recorded substantial growth though from a lower base, while in other regions it was not so significant. Continued growth of assets with FFIs in Europe and GCC region further increased the concentration of these assets.
“Banking sector exposure through cross border transactions is geographically diversified to a certain extent. During 2016, both assets and liability exposure to outside Qatar have increased, however the asset exposures remained within the regulatory cap. Considering the fact that around 49 percent of the earning assets are with ‘Other Mena’ region and ‘Europe’ vulnerabilities due to geopolitical and economic uncertainties from these region can impact the value of banking sector assets. Nonetheless, the impact will be limited, since these exposures contribute just above 10 percent of the total assets of the sector”, the QCB document noted.
Among the funded liabilities, Europe and GCC region covered more than two-thirds of the sources of funds. Banks’ borrowing including funds from financial institutions are sourced mostly from European countries.
On liability side, banking sector depends heavily on European region as around 37 percent of the cross border funded liabilities are from this region. Around half of the liabilities to foreign financial institutions are from European banks. In this context, any tightness in the foreign interbank market arises from uncertainties including Brexit may negatively impact the domestic liquidity position.
