Banks in Qatar had seen “positive” results in 2018, with an average 9.5% growth in net profit, and 3.2% growth in total assets, which, according to global auditing firm KPMG ,“demonstrates both strength and opportunities” in the country’s banking sector.
Furthermore, cost-to-income ratios for all (except two) banks in Qatar have fallen year-on-year, reflecting the continued focus on efficiencies to improve net profits, KPMG said in a report entitled “Embracing Digital.”
Credit quality does remain a challenge, it said, as loan impairment and non-performing loan (NPL) ratios increased compared to the prior year, while the expected credit loss (ECL) impact, as a result of the adoption of IFRS 9 on January 1, 2018, was $3bn (50% of existing provisions as on December 31, 2017).
However, Qatar’s listed banks did not experience a significant adverse impact on their total Capital Adequacy Ratios (CARs) as a result of the adoption of IFRS 9, KPMG noted.
Omar Mahmood, a partner at KPMG in Qatar and head of financial services (KPMG in the Middle East and South Asia) said, “Overall, it has been a positive year for listed banks in Qatar. While profitability and assets have, on average, increased from the previous year, banks in Qatar have also managed to reduce costs by 1.3% on average, resulting in a sector cost-to-income ratio of less than 28.2%. With the lowest cost-to-income ratio in the region, these impressive results reflect the continued focus by the sector, and the country as a whole, on efficiencies to improve net profits.”
Another leading focus for banks over the next year will be credit quality, which according to Mahmood “remains a challenge”, as loan impairment and non-performing loan (NPL) ratios increased from the prior year.
“Although NPL ratios remain relatively low when compared to international norms, 2018 saw higher ratios in comparison to the previous year,” he said.
As predicted last year, the regulatory agenda continues to evolve on local, regional and international levels, driven by global developments.
Mahmood further commented that, “New accounting standards, Basel III requirements and an increasing focus on Anti Money Laundering (AML) and Know Your Customer (KYC) will not only keep regulators busy in the year ahead, but will also drive banks to reshape their strategies to better prepare for, and effectively manage, tighter regulations, particularly in the new fast-paced digital era.”
Looking at the future of the financial services sector in light of the rapid technological advances being witnessed, Mahmood said, “In order for banks to differentiate themselves in a competitive market and remain relevant, they need to continue to innovate their practices and digitise their processes. Whether that is through their go-to-market channels, or through innovative technology in the back and front office, we expect an increased investment in this space.”
On Qatar’s efforts to embrace the digital agenda, Mahmood stated, “Financial institutions and regulators are showing greater support for the fintech sector, through various recent and upcoming initiatives, such as the launch of a local innovation hub and the expected opening of the first digital branch of an international bank in Qatar.
“The emergence of fintech is only the latest wave of innovation to have hit the banking industry yet it has the potential to lower barriers of entry to the financial services market and elevate the role of data as a key commodity and drive the emergence of new business models.”