Titled “Qatar’s Islamic banks are on a fast track to growth,” the report highlighted that a surge in the demand for local credit to finance government infrastructure and investment projects has made Qatar’s Islamic banking system the fastest-growing in the world.
“The total balance sheet of Qatar’s Islamic banks was $54 billion as of year-end 2012,” Standard & Poor’s credit analyst Timucin Engin, said. “Assuming that the Islamic banks grow by an average of 15% over the next five years–which is significantly lower than the previous five-year average of 35%–we could see their asset base exceeding $100 billion by 2017.
“This would make Qatar’s Islamic banking market the third-largest in the Gulf region, after Saudi Arabia and the United Arab Emirates,” added Mr. Engin.
Like other countries in the Gulf region, Qatar’s debt capital markets are at a nascent stage and the bulk of its credit generation derives from bank lending. It is therefore the Qatari government’s large infrastructure and investment projects that enabled the country’s domestic credit to grow at a compound average rate of 30.9% between 2006 and 2012.
Administrative delays with certain projects led to a visible slowdown in lending in the first half of 2013, but we expect credit growth to reaccelerate in 2014, when major infrastructure projects start in preparation for Qatar hosting the 2022 World Cup. We believe this will bolster the domestic demand for credit in the country and support the lending activities of its Islamic banks.
However, we question whether the Qatari Islamic banks can sustain their rapid growth over the long term, once the government infrastructure projects slow down. This is because, with a total population of less than two million, Qatar’s bankable population is limited. Moreover, expatriates and foreign workers represent a predominant portion of this figure, and tend to have relatively limited assets in the Qatari banking system.
“We believe this may eventually lead the Islamic banks to look at overseas expansion. Over the past 12–18 months, we have seen some of Qatar’s most active conventional banks acquiring banking assets in other regional markets, notably Turkey and Egypt. We see a possibility of Qatar’s Islamic banks taking a similar approach in the long term, once the country’s credit growth has slowed,” S&P in a statement said.