The Commercial Bank of Qatar, the country's largest private bank, saw provisions on bad loans and investments almost treble in the first half of the year as consumer debt defaults spread to the country with the highest GDP per capita in the Gulf. The company reported its results as banks across the region come under increasing scrutiny because of rising loan defaults from customers unable to repay debt incurred during the boom years.
The bank took 254 million rials (Dh256m) in provisions in the first half. Of that, it set aside 105m rials for potential losses on its personal loan portfolio. It set aside another 97m rials to make up for corporate customers who did not pay back their loans. The remaining 52m rials went to offset declines on its investments. Raj Madha, a banking analyst at EFG-Hermes in Dubai, said: "The real question is whether this increase will be sustained, and whether it reflects a rise in non-performing loans."
Gulf banks are bracing for an increase in loan defaults as a growing number of consumers face economic hardship after losing their jobs, while companies face financial difficulties. The rise in bad loans has become a particular problem for countries with high expatriate populations such as the UAE, where people are forced to leave the country once they lose their jobs, often leaving their debts behind. Some analysts expect defaults on unsecured loans and credit cards to reach between 5 and 10 per cent of bank lending by the end of the year.
Mr Madha said new non-performing loans at the bank exceeded Dh100m in the second quarter. In the first half, non-performing loans stood at 474m rials, representing 1.46 per cent of the bank's total loans and advances. "The number has broken the one per cent annualised provisioning rate," Mr Madha said. A one per cent rate means the bank sets aside one dirham for every Dh100 it lends. By taking higher provisions, banks take a buffer against future losses, but also lower their profits.
The Commercial Bank of Qatar posted a net profit of 943m rials in the first half of this year, down 9 per cent from the same period last year. Without provisions, the bank would have seen its profits rise 10 per cent. Qatar, flush with hydrocarbons, is expected to be one of the world's fastest-growing economies this year. Analysts expect the country to emerge from the global financial crisis in better shape than many of its Gulf neighbours because it is less reliant on the price of oil, deriving the bulk of its income from long-term gas contracts.
However, the government has still taken exceptional measures to stabilise its banks by buying property and some equity investments off their books. Qatar Islamic Bank also reported a decline in profit yesterday. First-half profits fell 5 per cent to 812.6m rials from 853.5m rials in the first six months of last year. email@example.com