DUBAI May 21 Commercial Bank of Qatar (CBQ) and Doha Bank may need to increase their capital next year by $412 million each to abide by expected central bank regulations, U.S. investment bank Morgan Stanley said in a report.
While Qatari banks have formally adopted Basel 3 international regulations as of early this year, the investment bank expects Qatar's central bank to impose higher capital requirements that could go up to 16 percent of risk-weighted assets in 2019.
Qatari banks will choose to raise capital, rather than curtail growth or cut dividends to zero, and might also look at further overseas expansions to beat limited growth prospects in a country of 1.7 million people, the report said.
"Investors have yet to appreciate the full implications of Qatar's move to Basel 3," said Morgan Stanley in an emailed report dated May 19.
"We think the Qatar Central Bank will require 14 percent capital from FY15. We don't think cutting growth is an option for the banks. So, we expect Qatar National Bank and Doha Bank to pare divis, while Commercial Bank of Qatar and Doha Bank may also opt to raise capital," it said.
Qatar's central bank, which set the minimum Basel 3 capital level for local banks at 12.5 percent versus 10 percent under Basel 2, may require new capital buffers as early as next year, effectively raising the minimum ratio to 14 percent by the fourth quarter of 2015 and 16 percent by early 2019, the report said.
While Qatar National Bank's (QNB) organic capital generation will be sufficient to cover capital requirements, Morgan Stanley expects that both CBQ and Doha Bank will need to raise 1.5 billion riyals ($412 million) each in Tier 1 capital to keep pace with growth.
CBQ and Doha Bank could not immediately be reached for comment.
Morgan Stanley upgraded CBQ to "overweight" with a price target of 80 riyals. The bank's shares are flat at 67 riyals on Wednesday.
Both QNB and Doha Bank were both downgraded to "even," with targets of 204 riyals and 67 riyals respectively. QNB is trading down 0.3 percent at 184.50 riyals while Doha Bank is up 1.1 percent at 63.70 riyals.
($1 = 3.6410 Qatar Riyals) (Reporting by Mirna Sleiman; Editing by Mark Potter)