• Consumers and SMEs default
• Non-performing loans up 24%
• QNB positioned to absorb loss

Qatar National Bank (QNB), the Middle East and Africa’s largest lender by assets, this week reported another solid set of annual earnings.

Yet within its financials lurks a potentially worrying statistic: rising loan defaults by consumers and small companies.

As the Qatari government’s lender of choice – the state owns half the bank – QNB is focused primarily on financing the country’s public sector and major corporations but also serves retail customers and has operations in Egypt and Turkey too.

In 2024, retail non-performing loans (NPLs) totalled $1.6 billion, up 24 percent versus the 2023 total of $1.3 billion.

This increase is likely to come from its Turkish subsidiary, analysts say, noting QNB does not provide a geographical breakdown for this metric. NPLs from lending to small and medium-sized businesses grew 5 percent to $375 million in 2024.

Turkey’s benchmark interest rate soared to 50 percent in March 2023 from 8.5 percent in May 2022 as president Recep Tayyip Erdoğan’s surprise re-election that month signalled a drastic change in economic policy. The aggressive rate hikes increased repayment costs for borrowers with variable rate loans.

Non-performing consumer loans in Turkey totalled 51.9 billion lira ($1.5 billion) in November 2024, the most recently available data from the banking regulator shows.

That is up 74 percent versus December 2023 and 157 percent higher than in April 2022 – the month before Erdogan’s re-election. Of the latest amount, 51 billion lira was from personal loans, which are usually unsecured.

Non-performing credit card debt totalled a further 50 billion lira, more than triple the amount at the end of 2023 and an eight-fold increase versus April 2022.

The central bank cut the benchmark rate by 250 basis points to 47.5 percent in late December, providing some respite to borrowers, as Turkey’s annual inflation eased to 44.4 percent in December from 75 percent in May.

Further interest rate reductions should lead to QNB’s NPLs from its Turkish unit falling in 2025, says Chiro Ghosh, vice president for financial institutions at Bahrain’s Sico Bank.

Rising NPLs from consumers and small businesses will push QNB to focus even more on its domestic public sector and corporate customers, which expose the bank to little risk of default, says Ghosh.

“Overall, QNB’s provisioning levels should fall this year versus 2024,” says Ghosh.

Business as usual

Also, QNB’s coverage ratio for loan defaults is among the highest in the Gulf after taking a conservative approach to provisioning over the past few years, Ghosh explains. As such, QNB is comfortably positioned to absorb any increase in problem lending.

At the end of 2024, QNB’s personal loans and advances amounted to QAR84.6 billion ($23.2 billion), up 4 percent versus 2023 but constituting less than 10 percent of its total loans and advances of $239.4 billion.

The bank’s overall non-performing loan ratio fell slightly in 2024 to 2.8 percent as a decline in problem corporate loans outweighed the increase in retail and small business NPLs.

“It’s business as usual for QNB when it comes to lending,” says Elena Sanchez-Cabezudo, head of Mena financials equity research at EFG-Hermes in Dubai. “There will be borrowing demand relating to Qatar’s LNG (liquefied natural gas) capacity expansion, while loan growth in Turkey and Egypt should also be decent.”

Rate cuts ‘would be positive’

Qatar follows US interest rate changes due to the riyal’s dollar peg. The US Federal Reserve in December reduced its benchmark rate by 25 basis points to a target range of 4.25-4.50 percent although it also forecast making only two cuts in 2025 due to inflation worries. It previously envisaged making four rate reductions in 2025.

“Bigger and more numerous rate cuts would be positive for credit demand, while there’s an underlying risk that fewer-than-expected rate cuts could cause some customers to suffer difficulties repaying debt,” says Sanchez-Cabezudo. “But that’s a generic business risk for banks, not specific to QNB.”

She expects QNB to perform similarly in 2025 to last year, namely reporting loan growth of about 7 percent and a 7-8 percent rise in pre-tax profit. 

Such numbers may not dazzle, but QNB is such a large bank in regional terms that a pre-tax profit increase of that magnitude would equate to about an extra QAR2.1 billion ($586 million), according to AGBI calculations.

EFG Hermes and Sico both have “buy” recommendations on QNB’s stock although their target prices vary at QAR18.30 and QAR21 respectively.

QNB’s shares were trading at QAR16.80 on Thursday, down about 30 percent from early 2022’s all-time high.