Qatar's overbanked system could see more consolidation triggered by pressure on banks' profitability from the coronavirus pandemic.
Qatar , Qatar
07 February 2021, 12:00 AM
28 February 2021, 12:00 AM
Qatar is on the brink of being saturated in the banking markets, and so it might be seeing more consolidation due to low profitability of banks triggered by the COVID-19 pandemic, according to Global Ratings Agency, Fitch.
The rating agency said while banks with weaker franchises and limited pricing power are likely to prompt the next wave of consolidation, common government ownership is also a key driver to create better capitalised banks with enhanced competitive advantages to support the Qatar Vision 2030 development plan.
The recently agreed merger of Al Khalij Commercial Bank (AKCB) and the Islamic Bank Masraf Al Rayan (MAR) is likely to create the largest Islamic bank in Qatar through the total assets and business model of MAR, which is mainly focused on wholesale, to diversify. This will be the second merger in Qatar between an Islamic bank and a conventional bank after the Islamic bank Dukhan and the International Bank of Qatar (IBQ) merged in April 2019.
Regardless of a weaker economic environment and the expected downward pressure on valuations due to the impact of the pandemic, AKCB was valued at QAR8.2 billion, representing 1.14 times its tangible book value, compared to 1,027 times the tangible book value for IBQ.
Fitch said in a note, “In our view, this reflects AKCB’s adequate capitalization and private banking niche, a significant addition to MAR’s business model and financing franchise.”