IslamicFinance.de

The decision to allow new licences came at a meeting of Qatar’s Supreme Council for Economic Affairs and Investment on 9 September. The council reviewed developments in both energy and investment before turning to the proposal by Qatar Central Bank (QCB) to grant licenses to open branches for GCC banks in Qatar. The council approved the proposal, with licenses set to be granted according to QCB requirements. Qatar currently licences 11 domestic banks and seven foreign banks. Among the foreign banks, Mashreq is the only GCC-based institution to have a Qatari banking licence. Bahrain’s Ithmaar Bank has a representative office in Qatar but not a full licence.

The Qatar Central bank (QCB) has extended the deadline set for the insurance, reinsurance and Takaful companies to implement its new regulations. As per original schedule, the institutions were supposed to comply to the new regulations from the end of May. After realising that the insurance companies needed more time to reposition themselves to implement the new regulations, the central bank has extended the deadline to November 30. The proposed regulations restrict the companies and insurance practitioners from getting involved in cross-border activities. Besides, the QCB regulation requires the insurance companies to simplify their procedures and finance agreements and to be transparent in relation to their pricing and features of products and services.

Qatar has called for a global regulatory framework for the industry, saying it is needed to ensure the sector's stability. An important task of the authority would, naturally, be to collect data on credit risks of Islamic financial institutions so that those risks could be identified, said the Governor of Qatar Central Bank (QCB). There are certain high-risk areas in the Islamic banking and financial sector and they, for example, include real estate and consumer lending to certain categories of people, H E Abdullah bin Sauod Al Thani said. Efforts have indeed been made to diversify Islamic financial products, but they are not enough.

Qatar’s low insurance penetration is “a revealing factor” of great opportunities, Qatar Central Bank Governor HE Sheikh Abdullah bin Saud al-Thani has said. The country’s current level of penetration is around 0.5% of GDP and 1.6% as share of the insurance as part of the global business sector, Sheikh Abdullah said in his keynote address at the ninth MultaQa conference. Asserting that it is the desire of Qatar to reduce reliance on energy, Sheikh Abdullah, who is also the chairman of the Qatar Financial Market Authority and the Qatar Financial Centre Regulatory Authority, said the country’s insurance sector has been undergoing significant evolution and is in the process of establishing a committee for supervision of risk management.

Across the globe governments and corporates are attempting to take advantage of low interest rates caused by the US Federal Reserve’s extraordinary bond buying programme, locking in long term borrowing at peppercorn rates. The central bank of Qatar hopes to issue a mixture of conventional and Islamic government debt with a face value of $6.6bn. The debt programme will be at the shorter end of the yield curve and will be sold in three and five year tenors. Just under half the issuance will be Sukuk, with the rest in conventional instruments. Managing duration is very important for bond fund managers as it allows them to determine the risk on their total bond portfolio for a given move in interest rates. A longer duration bond will move more in value than a bond with a shorter duration for each 0.01 per cent (or 1 basis point) move in interest rates.

New regulations introduced by the Qatar Central Bank (QCB) in mid-June will curb local banks’ investment options, potentially making sovereign bonds more appealing at the expense of some private sector options. Under the new regulations, with which lenders must comply within six months, equities and bonds can account for up to 25% of a bank’s capital and reserves, although debt issued by the government and national banks are exempt from the limit. The cap had been previously set at 30%. The new regulations also limit the amount banks can place with individual companies and unlisted securities, establishing a maximum of 5% of capital and reserves for foreign investments and 10% domestically. The cap for total foreign equities is set at 15%. These new rules will apply to both conventional and Islamic lenders.

Ten executives from six banking organisations in Korea recently participated in a training course on Islamic finance in collaboration with Qatar Central Bank (QCB). It was intended to enhance the understanding of Islamic finance so that it could be applied in Korea. The trainees had a deeper look at the financial industry in the Middle East, including Qatar, licensing systems, main principles of Islamic finance, basic contracts and case studies on Islamic financial products. They visited Qatar Islamic Bank, Qatar Financial Centre, Qatar Islamic Insurance Company, Barwa Bank, Masraf Al Rayan and others. The training was part of an agreement signed by the Middle East-Korea Financial Co-operation delegation and QCB last January.

Qatar will sell QR4bn ($1.1bn) of three-year and five-year bonds and sukuk. The Qatar Central Bank will offer local banks QR3bn worth of bonds and QR1bn worth of Shariah-compliant notes. The local currency issues will take place quarterly, but it was not specified how much of each maturity would be sold. The objective behind an issuance is reportedly to build a domestic sovereign yield curve.

According to the International Monetary Fund, complete segregation of Islamic and conventional banking in Qatar “should reduce the risk of contagion” from one segment to the other in case banking troubles arise in either one.
In February last year, Qatar Central Bank had managed local conventional banks that have Islamic windows, to stop opening new Islamic branches, accepting Islamic deposits, and extending new Islamic financing from 2012. In QCB’s concept, the overlapping nature of non-Islamic and Islamic activities makes banks’ risk management and compliance with prudential requirements more complex.

The Chief Executive Officer of First Finance Company agrees with the Qatar Central Bank to impose greater regulation on conventional banks offering Islamic services over concerns that "unhealthy competition could lead to over-aggressive practices".
Khalid bin Ibrahim Al-Sulaiti, who is also Vice Chairman of IFS consultancy Bait Al Mushara, told Oxford Business Group (OBG), the global publishing, research and consultancy firm, that the constraints of Qatar's market also highlighted the likelihood of consolidation within the sector.

Conventional banks with Islamic arms will meet the banking regulator shortly with a joint plea that their Islamic operations that are to be closed by the year-end be converted into a single and independent Shariah-compliant bank.
Officials of the affected banks have met and prepared the proposal which is to be submitted to the Qatar Central Bank today or tomorrow.
If QCB agrees to study the proposal for approval, the name and the capital of the new Islamic bank would be decided and a detailed study would be conducted by a think-tank from within the local banking industry to assess the viability of the proposal.

The Qatar central bank appears to see higher risks from conventional lenders operating Islamic units, clarifying a recent ruling which asked commercial banks in the Gulf state to close their sharia-compliant operations. Qatar's central bank earlier in the week asked conventional lenders to close down their Islamic operations amid worries of overlap between the two, in a surprise move that boosted shares of Islamic lenders in the country.

Qatar Central Bank surprised commercial lenders by stipulating that they shut down their Islamic finance activities by year end, affecting banking strategies. The move leaves unanswered questions and big strategic worries for the big Western banks with a presence in the region.
Although the infrastructure around the provision of Islamic finance is onerous, the rewards are great for banks.

Qatar Central Bank has ordered conventional lenders operating in the gas-rich Gulf Arab state to shut down Islamic finance activities by the end of 2011, in a move that could curb an important source of income for many banks.
From the move will benefit players such as Masraf Al Rayan and Qatar Islamic Bank, whose shares rose 10% and 8.4% respectively.