Bank profits in the Gulf oil state of Qatar are coming under renewed pressure and foreign banks are retrenching further in one of the regions most overbanked markets. Results for 1986 show a year of declining profit for several foreign banks although locally-owned operations were in some cases able to cushion the drop by increasing market share. &lt;Qatar National Bank SAQ>s (QNB) General Manager Abdulla Khalid al-Attiya said: The economy is not improving as we hoped... 1987 will be another difficult year for the banks. Oil-dependent Qatar with a tiny indigenous population of 60000 to 80000 and an expatriate workforce estimated at about 280000 boasts five local banks and 10 foreign bank operations. Local and foreign bankers in the capital said the Gulf-wide recession aggravated this year by Qatars severe difficulty marketing its crude oil at official OPEC prices has taken a heavy toll on the economy and bank profitability. As a result the only U.S. Bank &lt;Citibank NA> is thought to be negotiating to sell its operation to the fast growing locally based &lt;Al Ahli Bank of Qatar QSC> which only started operations in 1984 bankers said. Citibank would not comment. Other foreign banks have retrenched with &lt;Standard Chartered Bank> cutting staff and others expected to follow. &lt;Banque Paribas> is examining a change in its status to admit 51 pct Qatari ownership in a bid to improve its access to local business bankers said. One banker added: Weak profits are here to stay for the time being. There is no cause for optimism at the moment. Sentiment had picked up briefly at the end of last year when OPEC reached its accord to curb oil output and return to fixed prices. However it soon became apparent that Qatar was having difficulty selling oil at OPEC prices. The soft spot oil market has left official Qatari crude prices 20 to 40 cents more expensive and sales have been running in recent weeks at 100000 and 120000 barrels per day well down on the nations OPEC quota of 285000 oil sources said. Bankers said this serious shortfall in Qatars revenue has led to a new spate of payments delays from the public sector to private contractors after a marginal improvement in January. Loan loss provisions continued to eat into bank profits last year as did the introduction of minimum reserve requirements by the Qatar Monetary Agency. Trade financing has almost dried up as a traditional source of bank income. Of the local banks QNB conducts the bulk of the governments business and subsequently enjoys a huge advantage its rivals cannot expect to match bankers said. The bank reported a 2.9 pct rise in net 1986 profit to 93.1 mln Qatari riyals while its balance sheet grew by 10.8 pct to 9.0 billion making it by far the largest bank in Qatar. But the strong assets growth partly reflected bridging loans for the public and private sector to tide government departments and local business over the lean economic spell Attiya said. Generally speaking we are overbanked in Qatar he said echoing a widespread feeling in the banking community. Other local banks fared less strongly. The second largest &lt;Doha Bank Ltd QSC> reported a 13 pct drop in net profit to 27.5 mln riyals while &lt;Commercial Bank of Qatar Ltd QSC> registered a decline to 18.5 mln riyals from 19.4 mln in 1985. The newcomer Al Ahli Bank continued to expand rapidly and reported net profit of 5.2 mln compared with 3.3 mln during the start-up period from August 4 1984 to end-1985. Bankers said the local banks had clearly begun to win commercial deposits previously held by foreign banks increasing already strong pressure on non-Qatari banks to reexamine their staffing levels and overheads. &lt;Grindlays Bank PLC> recorded a net loss at its Doha branch last year of 4.7 mln riyals after registering a nominal profit in 1985 of 12000 riyals. Two other long-established banks in the Gulf the &lt;British Bank of the Middle East> (BBME) and Standard Chartered also found last year a difficult climate to make strong profits. BBMEs net profit fell to 3.2 mln riyals from 10.4 mln in 1985 but Assistant Manager John Farquharson said 1985s result had been artificially inflated by tax rebates on provisions. Foreign banks are seeing their assets decline while local banks are increasing their market share Farquharson said. BBMEs operating profit was steady in 1986 edging up to 12.3 mln riyals from 11.5 mln in 1985. We are expecting the same level of operating profit in 1987 Farquharson said. Standard Chartereds net profit last year recovered slightly to 1.6 mln riyals after a loss of 161000 in 1985. Staff numbers were cut last year to reduce overheads. Bankers said the lack of new construction projects in Qatar means business is unlikely to pick up this year although hopes are rising that the start of Qatari gas exploitation could provide a boost. But the threat of higher U.S. Interest rates may erode bank deposits as savings are moved offshore.
QATAR"S BANKS SET FOR FURTHER LEAN SPELL