Qatar Banks' NPL Ratio Declines Considerably On Delinquency Rate Reduction: QCB

(MENAFN- Gulf Times) The non-performing loan (NPL) ratio of Qatar banks has declined considerably indicating they are taking appropriate measures to reduce delinquency rate, according to the QCB.
In its latest financial Stability Report, the Qatar Central bank said credit risk in the country's banking sector as measured through NPL marginally increased by end December 2023 over the previous year.
NPL from private sector credit increased by 0.4 percentage points, where the NPL from corporate sector stood below the sector average. Legacy NPL from the individual sector lead to double digit NPL from this sector. As noted in the previous sections, though interest rate continues to remain elevated during the year, quality of credit has not impacted significantly across all the economic sectors.
The slippage ratio, fresh accretion to NPLs during the year from the performing credit at the beginning of the year, reduced to 0.41% in 2023 compared to 1.3% in the previous year.
The incremental ratio of NPL, which measures the incremental change in NPL vis-à-vis incremental change in credit, also decreased significantly from 39% to 15.7% in 2023, KPMG said.
“The decline in slippage ratio as well as incremental ratio coupled with only a marginal increase in gross NPL ratio shows the vulnerabilities of the banking sector from credit risk moderated as compared to last year,” the QCB said.
Moreover, availability of sufficient coverage of delinquent loans through provisioning as well as availability of higher capital buffers above the regulatory minimum place the banking sector more resilient to adverse shocks.
However, increase in vulnerabilities from stress on household sector and corporate sector balance sheet cannot be ruled out especially in an increasing interest rate scenario.
Therefore, to assess the impact of probable credit risk from corporate and household sector, the QCB stressed the banking sector's credit portfolio by assuming high NPL levels from credit provided to private sector.
The stress period is considered as one year, the central bank noted. Economic sector wise credit is expected to grow by three-year Compound Average Growth Rate (CAGR) adjusted with a judgement based on expected macroeconomic environment.
Assuming credit provided to consumption sector, contractors and real estate sector will be most affected due to slowdown in demand and decline in rental income, the stress scenarios considered higher percentage of performing loans turned delinquent.
A moderate stress condition is assumed for all other sectors except public sector.
The stress test results showed the capital ratios of the banks declined in the range of 2.4 to 5.3 percentage points. Individually, some of the banks need to augment their capital level to meet the prescribed minimum level of capital requirements.
A reverse stress test -“stress to break-even” analysis - is also conducted to examine the threshold limits of NPLs up to which the banking sector can withstand without adversely impinging on its capital ratios below the threshold minimum.
The analysis suggests, considering 12.5% as the benchmark minimum CAR required to be maintained by the banks, at least 12% of the performing loans of all the sectors excluding public sector as at end December 2023 has to migrate to non-performing so that the CAR breach the required minimum.
“Thus, the credit stress tests results indicate, even though at individual bank level traces of risk can be identified, overall, the banking sector is at comfortable position owing to the availability of sufficient capital,” QCB noted.

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