"World Cup Borrowing Binge Leaves Qatar\u2019s Banks Grappling With Losses"

" World Cup Borrowing Binge Leaves Qatar\u2019s Banks Grappling With Losses \r\n \u00a0It\u2019s been almost two years\u00a0since Qatar hosted the World Cup and the euphoria is fading as state-backed lenders that helped finance everything from highways and hotels to stadiums and sewage systems grapple with rising loan losses. \r\n The Qatari government is now considering ways to shore up these banks\u2019 balance sheets, according to people familiar with the matter, who asked not to be named discussing confidential information. The options on the table include\u00a0hiring restructuring advisers, stepping in to buy struggling real estate portfolios from banks stung by defaults or forcing smaller lenders to merge. \r\n The gas-rich government has never let a Qatari bank fail, but the price this time may include placing limits on the $510 billion sovereign wealth fund just as its global profile reaches new heights. The government could cap payments from its budget surplus to the Qatar Investment Authority to help fund any help for the banks, according to separate people familiar with the matter. \r\n \u201cThe state of Qatar\u2019s economy is strong and well-positioned for the future, and this includes the banking sector,\u201d Qatar\u2019s International Media Office said in a statement, while declining to comment on the government\u2019s specific considerations. \u201cThe average ratio of non-performing loans has remained within the expected range since Qatar hosted the World Cup in 2022.\u201d \r\n Deliberations are at an early stage and it\u2019s unclear what measure, if any, the government will ultimately take, the people said. A representative for the QIA declined to comment. \r\n Qatar shocked the world when it won the rights to host the 2022 World Cup back in 2010. The tiny country is smaller than the state of Connecticut, occupying just 4,500 square miles on a peninsula that juts into the Persian Gulf. \r\n But a plethora of gas wealth \u2014 the nation is setting itself up to control about a quarter of all liquefied natural gas by the end of the decade \u2014 has given it outsize influence on the world stage. A global negotiator, the US has praised Qatar in recent months for being a key mediator between Israel and Hamas and helping get some hostages held by the group in Gaza released. \r\n Much of that influence started to build in the run up to the 2022 World Cup. The final tab for the games was about $300 billion, as Qatar constructed a whole network of highways as well as a brand-new public transit system to connect the seven stadiums it built to host the games. Developers erected towering luxury hotels to house the influx of visitors. Officials even had to start an overhaul of the country\u2019s sewage systems to handle the 1.2 million fans estimated to come through for the monthlong event. \r\n The government relied on hundreds of property developers and construction firms for the work. They, in turn, racked up big bills along the way, leaning on local lenders to finance the projects. \r\n While officials have attracted a steady stream of events since then, Qatar\u2019s revenue per available hotel room, a key measure of profitability for the hospitality industry, plummeted last year as an oversupply of hotel rooms roils the country\u2019s tourism industry and the country wasn\u2019t able to top the hoards of tourists it brought in for the games. \r\n Some construction firms have turned to the arbitration system complaining that they\u2019ve struggled to collect payments from the government. \r\n \u201cPayments for all World Cup projects have been made on schedule, except in a small number of cases tied to reasons such as outstanding performance issues and commercial disputes,\u201d Qatar\u2019s International Media Office said in the statement. \r\n It\u2019s an unusual situation. Qatar ranks as one of the richest countries in the world on a per capita basis, and it\u2019s currently developing a new liquefied natural gas project that is expected to increase the government\u2019s annual revenue by about $31 billion. Soaring energy revenues already handed Qatar a budget surplus of 43.1 billion riyals ($11.8 billion) in 2023, further boosting the fortunes of the country. \r\n \u201cOver the last five to six years, we have seen a growing trend of arbitration work in Qatar,\u201d said Paul Prescott, a partner at the law firm Dentons, who specializes in construction and dispute resolution in the Middle East. \u201cWe have seen several heavyweight construction and engineering disputes resolved by arbitration including those between tier 1 contractors and its supply chain.\u201d \r\n Overcapacity Problems \r\n Taken together, it\u2019s all left many firms unable to keep up with their borrowings, the people familiar with the matter said. About 3.5% of Qatari banks\u2019 loans were\u00a0considered problem loans\u00a0at the end of the first quarter, up from 2.6% just two years ago, according to Bloomberg Intelligence. For their peers across the Middle East, that ratio has dropped by about 100 basis points during that time to 2.95%, the data show. \r\n Commercial Bank PSQC has already begun trying to auction off some of its distressed real estate assets, according to some of the people familiar with the matter. \r\n \u201cWeakening loan performance is largely due to overcapacity in the real estate sector \u2014 shopping malls and office buildings \u2014 and in the service sector \u2014 mainly hotels,\u201d Moody\u2019s analysts led by Francesca Paolino said in a report. \u201cPayment delays in the contracting segment, as well as current high interest rates have also contributed.\u201d \r\n In addition to Commercial Bank, mid-sized banks including Doha Bank QPSC, Qatar Islamic Bank SAQ and Masraf Al Rayan QSC have designated an increasing number of loans as Stage 2, which is reserved for those borrowings that carry an increased credit risk. \r\n A spokesperson for Doha Bank declined to comment, while representatives for the other three banks did not respond to requests for comment. \r\n With bad loans mounting at these banks, investors have punished their share prices. That\u2019s led to a rout that\u2019s left Qatar with one of the worst performing stock markets. \r\n To be sure, at least one bank has started discussions with the Qatar Central Bank to move some of the assets it\u2019s classified as Stage 2 back into Stage 1 \u2014 the category for performing loans \u2014 after seeing signs that the borrowers\u2019 financial health had improved. \r\n \u201cWe have requested approvals from QCB because a lot of them are fairly decent performing,\u201d Gourang Hemani, chief financial officer at Qatar Islamic Bank, told investors on a conference call in April. \u201cHowever QCB, as we all know, is a very extremely conservative regulator and they want to see a much longer period before which they will allow any upgrades from Stage 2 to Stage 1.\u201d \r\n The QCB and individual banks conduct regular stress tests to ensure that banks\u2019 can meet the central bank\u2019s capital and liquidity requirements \u201ceven under the most extreme conditions,\u201d Qatar\u2019s International Media Office said in the statement. \r\n What Bloomberg Intelligence Says: \r\n At QIB, \u201cannualized cost of risk reached 60 bps in 2Q, but QIB remains committed to its reserve buildup strategy, with Stage 3 coverage reaching 95%. Though asset quality has remained stable, the oversupplied real estate sector still poses risks.\u201d \r\n \u2014 Salome Skhirtladze, BI financials analyst \r\n As the Qatari government deliberates possible solutions to the problem of rising losses on banks\u2019 balance sheets, it\u2019s considering using a playbook it last used in the depths of the global financial crisis. In 2009, the government offered to purchase about $4.1 billion of real estate portfolios from local banks as it sought to support the sector. \r\n Back then, the government also purchased about $6 billion worth of listed shares held within the investment portfolios of the local Qatari banks. \r\n The nation is now the biggest\u00a0shareholder in some local lenders, including Qatar Islamic Bank, Commercial Bank and Doha Bank. It\u2019s also a major shareholder in Qatar National Bank. \r\n \u201cQatari banks benefit from a very high probability of government support in a crisis,\u201d Paolino said in the Moody\u2019s report in March, adding that the country\u2019s \u201cstrong willingness to provide a backstop is shown by the pre-emptive support it has extended to the banks in times of stress and the fact that it has never let a domestic bank default on its debt or deposit obligations.\u201d \r\n Masraf Al Rayan\u00a0and Doha Bank would likely be the biggest beneficiaries of any government support, analysts at HSBC Holdings Plc said in a note to clients earlier this year. The analysts estimated the government would need to buy about $13 billion of real estate in order to help the sector. \r\n \u201cNeedless to say, such support measures would act as a positive catalyst for the sector,\u201d the HSBC analysts said in the note to clients seen by Bloomberg, which was originally published in February. \r\n For now, many Qatari officials are focused on organizing a busy calendar of sports, art, design and fashion events as part of the push to reach its target of 6 million international visitors annually by 2030, almost three times the number it had in 2019. This year has started strong, with Doha clocking 700,000 visitors in January as it hosted the AFC Asian Cup soccer tournament. \r\n \u201cIt seems to have picked up a little bit,\u201d Alexis Neeson, group chief risk officer at Masraf Al Rayan, told investors in April. \u201cThere\u2019s definitely a feeling that there is a bit of improvement in the hospitality sector. Whether that translates all the way through to a complete recovery \u2014 we\u2019ll see.\u201d "

"World Cup Borrowing Binge Leaves Qatar\u2019s Banks Grappling With Losses"

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