LCRs of Islamic lenders in Qatar comparable to conventional peers

Qatari Islamic banks’ short-term high quality liquidity assets to cover monthly net cash outflow is comparable to those of their conventional peers and their funding pressures are to some extent mitigated by frequent bonds and sukuks issuance by the government, according to Moody’s, a global credit rating agency.

“In Qatar, the LCRs (liquidity coverage ratios) of Islamic banks are comparable to those of their conventional peers. This situation reflects the absence of sizable retail deposit franchises among the Qatari banks, coupled with heightened systemic liquidity pressures that had led to banks relying more heavily on market funding,” Moody’s said in a report. The funding pressures are mitigated somewhat by the frequent issuance of bonds and sukuk by the Qatari sovereign, a situation, which provides local Islamic banks with the same good access to HQLAs (high quality liquid assets) as their conventional peers, it said.
The rating agency found that five of the six GCC countries are Basel III compliant and have introduced LCRs, namely Saudi Arabia, Qatar, Kuwait, Bahrain and Oman; only the UAE has yet to adopt a LCR framework for its banks.
“The LCRs of Islamic banks in key Asian and GCC countries highlight sound liquidity profiles and broad compliance with Basel III regulatory requirements,” it said.
The Basel Committee on Banking Supervision recommended that the LCR minimum standard be implemented starting January 2015, with 100% compliance required by January 2019. National implementation schedules will, however, vary. However, in a comparison of their LCRs with conventional peers across countries, those Islamic banks with a strong retail focus typically have strong LCRs, but they also face a shortage of Shariah-compliant HQLAs, putting them at a disadvantage relative to conventional banks, according to Moody’s.