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Fitch sees retail lending risk in Qatar as moderate

Santhosh V Perumal Gulf Times
Fitch sees retail lending risk in Qatar as moderate - Real Estate - Property - Fitch - retail - Qatar - UAE - Middle East


Credit rating agency Fitch finds only “moderate” risk potential in retail lending of the Qatari banking sector compared to “high” risk of those in the UAE and Oman.



Although appreciative of the prudential regulations of the Qatar Central Bank (QCB), Fitch, however, said a 50% debt service coverage ratio (DSCR) imposed on the lenders was “high” as tighter credit norms had contributed to a decline in retail loans as a proportion of total loans.
Fitch viewed that “the potential risks from retail lending as high in the UAE (particularly Dubai) and Oman, moderate in Bahrain, Kuwait and Qatar, and low in Saudi Arabia.”
Fitch said in a special report, GCC Banks: Risks from Retail Lending, that the more challenging operating environment had negatively affected prospects for retail banking in the GCC although the degree of severity would vary.
Fitch considered a “moderate” potential for risks for Qatari banks from retail lending, given the high leverage available, a relatively large expatriate population and high inflation.
“These risks are mitigated by Qatar’s tighter regulation and the strength of the Qatari economy, which has been somewhat protected from the global recession by its vast energy reserves,” said the agency.
QCB had tightened regulation on personal loans in March 2008 when maximum DSCR was reduced to 50% from 70%, while the maximum tenure was maintained at seven years and the maximum potential credit extended to an individual capped at QR2.5mn.
Fitch noted that the leverage available to Qatari nationals had been reduced, which contributed to slower growth in retail loans (20% in nine-month of 2008 against 34% in 2007 and 42% in 2006).
“Fitch considers a 50% DSCR as high, particularly Qatar has the most inflationary economy in the GCC with inflation of high 15.1% year-on-year in 2008,” it said.
Tighter regulation has contributed to a decline in retail loans as a share of total loans, it said, adding retail loans accounted for 25% of total Qatari banking system loans at the end of September 2008, which was a fairly high exposure within the GCC.

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