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Qatar banks search for growth

13 January 2026

 

Compared to the explosive loan growth witnessed in some other Gulf states, Qatar’s banking sector remains stuck in a lower gear, as a product of both a tougher interest rate environment and rising operating expenses and loan-loss provisioning charges. This resulted in flat profits in H1 2025, when the aggregate net income of banks rated by Moody’s stood at QR14.2bn ($8.9bn) – just 1% higher than the previous year.

The largest Qatari lender, Qatar National Bank (QNB), reported net profits of QR12.8bn ($3.5bn) for the first nine months of 2025, a 1% increase compared to the same period in 2024. Commercial Bank of Qatar (CBQ), another large Qatari lender, reported a 16.5% decline in profits over the same period, to QR1.96bn, with loan impairments and lower interest income squeezing margins.

Provisioning and risk-linked costs

Unlike Saudi Arabia’s booming mortgage market, Qatar has not offered income-fattening lending opportunities. Instead, provision levels are elevated: the ratio of loan loss provisions to gross loans stood at 4.2% in October 2025, up from 3.9% at the end of 2024. According to QNB Financial Services, provisions increased by 14.5% in the first 10 months of 2025.

And analysts see overall provisioning costs remaining elevated this year. Though sector-wide provisioning fell to around 9% at the end of Q3 2025, down from 12% a couple of years ago, it remains at a level that is weighing on the banking sector’s profitability.

The ratio of underperforming loans with increased credit risk is also elevated. “The sector is starting to see a gradual, though modest, decline in Stage 2 loan ratios among the banks most impacted, but levels remain above those of Saudi Arabian and UAE banks,” says Amin Sakhri, director, Financial Institutions for Fitch Ratings.

Analysts also see other banking metrics remaining challenged.

“We expect the cost of risk to remain at the recent high level, especially at banks which are more exposed to real estate and contracting sectors,” says Francesca Paolino, assistant VP-analyst at Moody’s Ratings.

“This is because we still foresee asset quality pressure at such banks largely reflecting overcapacity in the real estate sector and payment delays in the contracting sector.”

Nonetheless, says Paolino, Qatari banks still benefit from significant lending to the low-risk Qatari government and public sector organisations, while personal loans are largely to Qatari nationals with high job security and creditworthiness.

Steady, but static profitability

Profitability metrics are likely to be broadly stable for the full year 2025, predicts Fitch’s Sakhri, despite the US-tracking rate cuts, as Qatari banks are more neutral to these than other banks in the GCC because their costs of funding tend to benefit more.

“We’re not anticipating a significant uptick in terms of profitability metrics for 2026 and any uptick could be coming from some reduction, albeit modest, in loan impairment charges. We’re seeing some further stabilisation in terms of the domestic operating environment, with asset quality deterioration being more contained,” says Sakhri.

Loan growth is picking up, which may provide some uplift to profits this year – even if it is unlikely to prove spectacular.

Alongside the reducing cost of risk, another factor that will support profits this year is growth in key economic sectors. Fitch anticipates a credit growth of about 6% for the sector in 2026, with demand coming from key economic sectors.

Wider economic improvements will also feed through into the banking sector.

Moody’s expects non-oil growth in the single digits, at 4.0% in 2026 – down slightly on 4.5% in 2025, but still up from 3.4% in 2024 and 2.1% in 2023. This is being spurred by sporting events, business exhibitions and related economic activities, as well as projects associated with the expansion of Qatar’s liquefied natural gas production capacity. “As a result, we expect private sector credit growth to be around 5% in 2026,” says Moody’s Paolino.

Higher fee and commission income, driven by growing non-funded income-related activities, will offset a potential drop in net interest income in 2026 even as interest rate cuts constrain margins. The net effect will be to keep operating income broadly stable.

“We expect cuts in interest rates to temporarily squeeze NIMs [net interest margins] because loan interest rates are likely to decline faster than the rates paid on deposits and other funding costs,” says Paolino.

“However, this will also be mitigated by the banks’ skew towards short-term funding, which enables them to respond quickly to lower interest rates.”

Digital-driven efficiency

Another core strength of Qatari banks is their GCC-leading operating efficiency levels. According to Moody’s, the cost-to-income ratio remains around 25% – a level it does not expect to drastically change.

In the short term, Qatari bank investments in digital tools and technology are expected to keep expenses on a rising trend. Longer term, however, the hard-wiring of digital services into lenders’ offerings is liable to yield dividends.

For example, QNB last year signed three memorandums of understanding with Qatar Financial Centre (QFC), Qatar Development Bank (QDB) and Rasmal Ventures, aimed at strengthening Qatar’s role as a hub for fintech and digital transformation. The QFC agreement involves QNB facilitating the growth of fintech firms by providing access to banking infrastructure and supporting innovation in digital assets, tokenisation and embedded finance.

Such moves, along with customer-facing measures designed for ease of use, will inevitably enhance performance levels. That in turn will help Doha’s banks soften the blow of the other headwinds in effect in Qatar, including higher taxes.

As Paolino explains: “Another aspect we expect to impact profitability, compared to the past, is the higher tax expenses because of the accrual of Pillar Two Taxes, effective from 1 January 2025, under the Global Anti-Base Erosion (GloBE) rules, known as the Global Minimum Tax.”

As of June 2025, notes Moody’s CBQ and QNB’s net profit reflected a higher tax expense of QR2.3bn ($630m), compared with QR1.5bn ($410m) in H1 2024.

Qatar is not alone in the Gulf in applying these rules, but it does suggest that reversing the flat profit trend will not be a simple affair for banks in 2026.

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James Gavin

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