The net profits of Qatari banks returned to pre-pandemic levels in the first half of 2021 despite higher levels of provisioning charges, Moody’s Investors Service said in a report published this week.

Eight leading Qatari banks reported an aggregate net profit of QAR11.8bn ($3.2bn), up 12 per cent from the year-earlier and 1% higher than in the first-half of 2019.

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Growth in net profit was consistent across the banks and largely driven by an increase in both net interest and non-interest income, according to the report.

Loan-loss provisions remained elevated while costs were broadly flat

The recovery of oil prices and the resolution of Qatar’s diplomatic dispute with some of its neighbours are expected to support the banks’ full-year performance in 2021.

“We expect bottom-line profitability to remain stable in the second half of the year and relatively strong compared with regional peers,” said Nitish Bhojnagarwala, Vice President and Senior Credit Analyst at Moody’s.

While net interest income increased, net interest margins (NIMs) remained broadly stable at 2.2%, reflecting strong loan growth of 9% year over year.

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Stable NIMs reflected a decline in asset yields in the current lower interest rate environment – to 4 per cent from 4.5 per cent – that was fully offset by a decline in cost of funds to 2.1 per cent from 2.7 per cent.

Banks implemented strict cost-control measures

The banks improved their operating efficiency in 2020 through cost-control measures such as reducing staff and travel expenses, easing pressure on their bottom-line profit.

While the benefits of the cost-control have been accruing this year, aggregate operating expenses for the system increased by 5% in the first-half of the year.

Despite a modest overall increase in costs, the cost-to-income ratio for the eight banks fell to 24.1% in the first-half of 2021 from 25.7% a year earlier.

Loan loss provisions more than doubled

The banks’ provisioning increased to QAR5.5bn from QAR4.1bn a year earlier, and consumed around 31% of pre-provision income compared with 26 per cent previously.

Provisions in 2021 also more than doubled compared with the same period in 2019

Actions taken to contain the pandemic, the global economic shock and low oil prices weighed on borrowers’ repayment capacity.