Bloomberg News

Qatar Banks Extend Buying Spree to Tap Higher Rates: Arab Credit

January 13, 2013

Banks in Qatar, the world’s biggest exporter of liquefied natural gas, are acquiring lenders abroad to benefit from interest rates on loans that are two times higher in countries including Egypt and Turkey.

Qatar National Bank SAQ (QNBK), the Middle East’s largest lender, seeks to buy a bank in Turkey after taking over Societe Generale SA’s Egyptian unit last month, and buying stakes in Libyan, Moroccan and Iraqi lenders during 2012. Second-ranked Commercial Bank of Qatar QSC will start talks to buy Istanbul-based Alternatifbank AS, the Turkish bank’s owner said Dec. 24.

Banks in Egypt and Turkey charge higher interest rates on loans than their Doha-based peers. At 4.5 percent, Qatar’s benchmark lending rate compares with policy rates of 9 percent in Turkey and 10.25 percent in Egypt. State-controlled Qatar National sold five-year bonds in November at a coupon of 2.125 percent, compared with the 3.875 percent Turkiye IS Bankasi (ISCTR) AS paid the same month on notes due 2017.

“If you look at the cost of funds for these guys, it’s virtually nothing,” Emad Mostaque, a London-based investment strategist at Noah Capital Markets, said by phone on Jan. 7. “You borrow on the back of a strong Qatari government and you lend into a higher interest rate economy.”

Buying Binge

Qatar’s government, which holds the third-highest investment grade at Moody’s Investors Service and Standard & Poor’s, posted a bigger decline in borrowing costs last year than Middle East peers. The nation is using wealth from the world’s third-largest gas reserves to snap up global assets, including U.K. lukury-good store Harrods Ltd. and a stake in the Agricultural Bank of China, the country’s third-largest bank.

The government’s 5.25 percent 2020 bonds yielded 2.26 percent on Dec. 31, down 162 basis points, or 1.62 percentage points, for the year, before trading at 2.2 percent on Jan. 11. The average yield on the HSBC/Nasdaq Dubai Middle East Conventional Sovereign U.S. Dollar Bond Index fell 93 basis points to 3.98 percent in 2012.

Qatar National, which is 50 percent owned by the Qatar Investment Authority, a sovereign wealth fund, “can raise capital very cheaply to fund lending growth in its subsidiary,” Mostaque said, referring to Cairo-based National Societe Generale Bank (NSGB) SAE, or NSGB.

The Doha-based lender last month agreed to pay $1.97 billion for 77 percent of NSGB, which operates about 160 branches across the most-populous Arab country. The foray will make the lender the first in the Middle East to cross $100 billion in assets.

Higher Returns

Many Egyptian and Turkish banks offer more than 20 percent return on equity, Mostaque said. NSGB’s return is 21 percent, compared with an average of 12 percent for banks in the Middle East and Turkey, according to data compiled by Bloomberg.

Second-ranked Commercial Bank of Qatar has entered into talks with Anadolu Group to buy a majority stake Alternatifbank (ALNTF), according to a Dec. 24 filing to the Istanbul Stock Exchange. Anadolu owns 96 percent of the Turkish lender, which offers a 15 percent return on equity, data compiled by Bloomberg show.

Qatar’s 11 domestic banks may need to expand due to limited growth potential in a domestic market of 1.8 million people -- compared with about 84 million in Egypt and 80 million in Turkey. Economic growth in Qatar is likely to decline to 5 percent this year from 6.3 percent in 2012, the slowest since 2003, forecasts compiled by Bloomberg show.

Limited Growth

The “addressable” banking population in Qatar is just 400,000, Akber Khan, director of asset management at Al Rayan Investment in Doha, said by phone Jan. 9. “That is a difficult proposition,” he said. “The Qatari banking environment will improve and will offer significant opportunity over the coming decade, but when bank management teams revisited their long-term strategy, it was increasingly clear the future wasn’t going to be in Qatar alone.”

Domestic lenders have so far been able to feed off of government plans to invest $135 billion into projects including stadiums, a rail system and a new airport before hosting the 2022 soccer World Cup. The spending spurred 44 percent growth in lending to the government in the year to October, down from as high as 99 percent in May, central bank data show.

Mitigating Risks

Banks’ profit margins came under pressure last year as competition increased “significantly,” Khan said. The index tracking Qatari banking shares dropped 9.3 percent in 2012, outpacing the 4.8 percent decline for the benchmark QE Index.

“For Qatar, we see strong growth until 2022 and then growth could level off and therefore banks are looking for new growth markets,” Jaap Meijer, a director of equity research at Dubai-based Arqaam Capital Ltd., said in an e-mail Dec. 30.

Qatar National said last week it got approval to open a representative office in China, taking to 25 the countries in which it operates. Doha Bank QSC (DHBK) opened a branch in Abu Dhabi last month and Masraf Al Rayan (MARK), an Islamic lender, has until Feb. 4 to make an offer for Qatar International Islamic Bank (QIIK)’s stake in Islamic Bank of Britain Plc.

“Qatar is pushing above its own weight with acquisitions,” Meijer said.

To contact the reporter on this story: Robert Tuttle in Doha at rtuttle@bloomberg.net

To contact the editor responsible for this story: Alaa Shahine at asalha@bloomberg.net


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