Meed | Qatar banks look to calmer waters in 2025

Qatar banks look to calmer waters in 2025

15 January 2025

Doha’s lenders enter 2025 with a sense of quiet confidence, backed by broadly favourable macroeconomic trends shaped by still-solid oil prices and non-oil growth that will provide an uplift for operating conditions and loan growth.

Although these operating conditions are not as supportive for Qatari banks as for their peers in the UAE and Saudi Arabia, growth is nonetheless coming back to the sector, enabling banks to book more loans.

Credit growth is looking stronger. In the first 10 months of 2024, Qatari banks registered an annualised credit growth of 6.3%, more than double that of 2023, which was 2.9%.

“Resuming growth is supporting operating conditions for Qatari banks,” says Amin Sakhri, primary rating analyst at Fitch Ratings.

According to Sakhri, non-oil economic activity is also increasing. But it is the cornerstone hydrocarbons project, the North Field liquefied natural gas (LNG) expansion, that will likely give ballast to lenders in the next two to three years.

By the end of 2025, Qatari LNG production capacity will have risen to 110 million tonnes a year (t/y), ahead of a further increase to 126 million t/y by 2027. That sets the economy up well, with banks positioned to feel the impact.

“The LNG project, which benefits related sub-sectors, also supports credit growth. So there’s also another supportive element for Qatari banks,” says Sakhri.

Robust profitability

Profits have been healthy in the past year, benefitting from banks’ strong capitalisation levels and adequate liquidity.

Ratings agency Standard & Poor’s (S&P) expects this trend to continue with only a modest drop in net interest margins owing to interest rate cuts – and the impact of replacing non-resident funding (which is high in Qatar relative to other regional banking sectors) with higher-cost domestic funding sources.

Full-year 2024 results are awaited, but indications are it will have proved another solid year for banks’ bottom lines.

Qatar National Bank (QNB), which represents over 50% of total system assets – with just eight domestic commercial banks, it is one of the Gulf’s most concentrated banking sectors – reported a Q3 2024 net profit of QR4.5bn ($1.23bn), a 5.4% increase over the previous year. Loans and advances were up by 11% in the same period.

Profits were helped by still high interest rates in the first half of the year. While the lower interest rate environment will have some erosion effect on margins, Qatari banks are generally less sensitive to rates than other banks in the region.

Other metrics also look healthy. “We’ve seen the return on average equity increasing to 16.7% from 15.8% in 2023. This is despite still high loan impairment charges in Qatar, which are some of the highest in the GCC,” says Sakhri.

Property market uncertainty

One area of weakness is in the real estate sector, which has suffered from excess supply over a number of years, bringing down prices. According to Fitch, the banking sector’s exposure to the real estate and contracting sectors remains high, representing 17% of total sector lending.

“The real estate and construction sectors remain under pressure, and we see that in the banks’ loan books,” says Sakhri. “The cost of risk is still elevated in a GCC context, at 78 basis points in the first nine months of 2024 for the Qatari banking sector as a collective, well above the level observed in the UAE and Saudi Arabia.”

Those real estate pressures have contributed to higher loan impairment charges compared to the rest of the region. S&P envisages non-performing loans (NPLs) remaining elevated at 4% in 2025.

“If you look at stage 2 loans, the average for the Qatari banking sector is around 10-11%, whereas for the UAE and Saudi, it’s about 5%. Some of the smaller banks are heavily exposed to the real estate and construction sectors, leading to about a third of the loan book being classified as Stage 2, which is quite substantial,” says Sakhri.

However, Qatari lenders have tightened their underwriting standards in the real estate and contracting sectors, focusing on government-related projects and assignment of cash flow proceeds to reduce their repayment risks, notes Fitch. Some banks have also been reducing their exposure to these sectors.

In S&P’s view, while continued pressure on real estate prices could accelerate the migration of stage 2 loans to NPLs at some midsize banks, public sector initiatives and interest rate cuts will help prevent a more severe deterioration in asset quality.

Underlying strength

In any case, the sector’s strong capitalisation and conservative provisioning remain two core strengths. The average CET1 stood at a solid 15.5% at the end of September 2024. This, says Fitch, is further supported by strong provisioning practices, with 140% of stage 3 loans covered by provisions, among the strongest in the GCC.

Aside from the real estate exposure, the other key risk in Qatar is its long-standing reliance on external funding. The sector’s non-resident funding accounted for a still-high 42% of the banking sector’s funding at the end of October 2024, and the sector’s net external funding was a substantial 50% of GDP at the end of 2023.

There has been some change as GDP has grown, meaning total funding relative to GDP is decreasing. However, about half of the sector’s funding comes from external sources, which is not expected to reduce significantly.

“Yes, hydrocarbon revenues have been supporting domestic liquidity, but Qatari banks are really quite reliant on external funding. In Saudi Arabia and the UAE, you’re looking at 15%-20% coming from external funding, and Qatar has been traditionally more than twice that,” says Sakhri.

Looking forward, the broader positive impact from the LNG increase will provide improved operating conditions for Qatari lenders, which will impact on banks’ bottom lines – offsetting the lower credit demand that will result from the completion of a number of key infrastructure projects.

What’s more, notes Sakhri, lower rates mean the cost of funding will reduce, which is favourable for Qatari banks because they have some of the highest cost of funds in the GCC, and the impact on net interest margin will be less marked.

Put that together, and Qatari bank chiefs have reason to view the year as one in which the glass is half-full rather than half-empty.

MEED's February 2025 special report on Qatar includes:

> GOVERNMENT & ECONOMY: Qatar economy rebounds alongside diplomatic activity
> POWER & WATER: Facility E award jumpstarts Qatar’s utility projects
> DOWNSTREAM: Qatar chemical projects take a step forward

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James Gavin

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Saudi Energy, formerly Saudi Electricity Company, has announced revised electricity tariffs, which will take effect on 1 January 2027.

The revised tariff schedule, published on the company’s official website, covers residential, commercial, industrial, agricultural, charitable and government customers.

The largest percentage increase in consumption rates is 16.7%, for residential customers using up to 6,000 kilowatt-hours (kWh) a month. Residential customers will pay 21 halalas/kWh for monthly consumption of up to 6,000kWh, up from 18 halalas. For consumption above 6,000kWh, the rate will rise from 30 to 33 halalas/kWh, a 10% increase.

The industrial tariff will increase by 15%, from 20 to 23 halalas/kWh. Commercial customers, private healthcare facilities and private educational facilities will pay 25 halalas/kWh, up from 22 halalas, for consumption up to 6,000kWh a month, and 35 halalas/kWh above that level, up from 32 halalas.

Tariffs for charities and government customers will also increase. In addition to consumption-based charges, customers will pay a fixed monthly fee based on the capacity of their electricity meter. This replaces the previous separate charge for meter reading, maintenance and billing, with VAT applied to the revised tariffs.

Electricity investment

The new tariffs coincide with changes to water consumption tariffs announced by the National Water Company, also effective from 1 January 2027.

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The tariff changes come as Saudi Arabia plans substantial investment in its electricity infrastructure. In September 2025, Saudi Energy announced plans to invest SR220bn ($58.7bn) in power infrastructure projects between 2025 and 2030.

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Mark Dowdall
Dubai Municipality confirms AED3bn Tasreef drainage awards
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The projects will cover Jumeirah, Umm Suqeim, Al-Quoz, Al-Barsha, Al-Wasl and Al-Marmoom. The works include constructing and extending main stormwater drainage lines with diameters of up to three metres.

The four packages are part of Dubai’s AED30bn Tasreef programme, which aims to increase the emirate’s stormwater drainage capacity by 700% and reduce costs associated with pumping stations, network operations and maintenance by 20%.

The contracts have been awarded to China State Construction Engineering Corporation (CSCEC) and three local firms: Arifco Group, Nael Construction & Contracting (NCC) and Detech Contracting. Dubai Municipality did not state which projects the awards relate to.

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The third package, TF-13-C1, covers Al-Marmoom, where 23km of drainage infrastructure will be developed. According to a source, Arifco has been awarded this contract.

The final package covers Jumeirah and Umm Suqeim, where about 42km of main drainage lines will serve Umm Suqeim 1, 2 and 3; Umm Al-Sheif; Jumeirah 3; Al-Safa 1 and 2; and Al-Manara.

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Nakheel awards $259m Dubai Islands buildings contract
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Phase two comprises 360 homes across four buildings, with main construction scheduled for completion in late 2028.

Phase four includes 257 homes across four buildings, with completion targeted for the second quarter of 2029.

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The pipeline forms part of the government’s 2026-31 programme, presented to parliament last week.

The Marrakech-Agadir link is estimated to cost close to MD55bn ($5.5bn) and will cover a 240-kilometre (km) route through the High Atlas Mountains via Chichaoua. Civil engineering structures, including tunnels and viaducts, are expected to account for nearly 70% of the alignment.

In September, the government issued a decree declaring the Marrakech-Agadir and Chichaoua-Essaouira rail corridors to be of public utility, paving the way for land acquisition and expropriation procedures.

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Work on the Kenitra-Marrakech line had reached about 30% by May 2026, with commercial services targeted to begin in September 2029.

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Saudi Arabia’s Sports Ministry has tendered a contract covering early works at King Salman International Stadium in Riyadh.

The scope includes enabling works, site preparation and initial construction activities.

The tender was issued on 11 October, with a submission deadline of 19 November.

The stadium will cover about 660,000 square metres (sq m) and seat 92,000. Facilities will include a 150-seat royal suite, 120 hospitality suites, 300 VIP seats and 2,200 dignitary seats.

The wider development will include sports facilities covering more than 360,000 sq m, including two training fields and fan zones; a closed sports hall; an Olympic-sized swimming pool; an athletics track; and outdoor courts for volleyball, basketball and padel.

The stadium is set to host the final of the 2034 Fifa World Cup and will serve as the Saudi national football team’s main base.

US-based architectural firm Populous is the lead architect for the stadium.

Construction of the stadium is expected to be completed by 2029.

The stadium will be located next to King Abdulaziz Park.

Firms submitted prequalification statements for the main design-and-build contract in February.

Saudi stadium plans

In August 2024, MEED reported that Saudi Arabia planned to build 11 new stadiums and refurbish four facilities for the 2034 Fifa World Cup.

Eight stadiums will be located in Riyadh, four in Jeddah and one each in Al-Khobar, Abha and Neom.

A further 10 cities will host training bases: Al-Baha, Jazan, Taif, Medina, Alula, Umluj, Tabuk, Hail, Al-Ahsa and Buraidah.

There are expected to be 134 training sites in the kingdom, including 61 existing facilities and 73 new venues.

Saudi Arabia was officially selected to host the 2034 Fifa World Cup during an online convention of Fifa member associations at the Fifa Congress on 11 December 2024.

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