DOHA: Conventional banks are taken aback by the directive of the Qatar Central Bank (QCB) to close down their Islamic banking activities by the year-end.
Banking industry sources say more shocking is the suddenness with which the announcement has been made and it has not been made clear why the move was being made.
There are about 16 Islamic banking branches of commercial banks in the country with the largest lender, half state-owned Qatar National Bank (QNB), also having an Islamic banking outlet in Sudan.
It’s not clear what the QCB’s directives are regarding this overseas branch of the QNB, say industry sources.
What intrigues the banking industry more is the fact that barely seven months ago, the QCB Governor, H E Sheikh Abdullah bin Saud Al Thani, inaugurated HSBC’s Islamic bank branch with much fanfare.
“The same branch (and some 15 others) will now be closed down…Banking is serious business. It’s no gimmick,” said an industry source, criticising the QCB move.
He said he believed if such key policy decisions are taken ‘overnight and on ad-hoc basis’, they would spoil Qatar’s top ranking as far as ‘Transparency in Doing Business’ is concerned.
While the affected banks are left wondering how to recover their investments in Islamic banking activities and manage their long-term credit portfolios, experts say the QCB must review its decision.
“Qatar follows free market policy and its thrust is on ending monopoly and encouraging competition, but the QCB’s decision is against those principles,” banking expert Abdullah Al Khater told Al Sharq.
He said the move threatened to undermine the interests of both, the banks and their customers.
“We need to study the possible impact of the banking regulator’s move and see what viable alternatives we have so that we don’t lose our customers,” said Abdullah Al Raisi, deputy chief executive of Commercialbank, in remarks to the daily.
True. Since the QCB allowed commercial banks to open Islamic banking windows and branches in 2005, the ‘beneficiary’ banks have widened their customer base to some 80,000 individuals and corporate entities.
They have attracted billions of riyals in deposits and given away equally large sums as part of their medium and long-term credit portfolios.
“The time given to us to wind up our Islamic banking activities is so short that we can’t even imagine how to recover our investment and manage the credit portfolio,” said another industry source.
Islamic banking customers would at no cost accept doing transactions with the conventional banks due to the taboo of ‘riba’ (interest), and transferring their accounts to the full-fledged Islamic banks would choke up their limited networks and services.
“There has been a lot of improvement in Islamic banking services and products since 2005 thanks to QCB’s liberalised policy of permitting commercial banks to offer Shariah-compliant banking services,” said the source.
But with the monopoly returning, the services can only be expected to deteriorate rather than improve further.
The QNB is said to have no less than 45,000 customers of its Islamic banking services alone. The division netted profits to the tune of a whopping QR900m last year.
The division, additionally, employs scores of citizens and expatriates in its Islamic banking branches. The vast majority are nationals. “What would happen to these staff members—is a major question,” asks yet another banking source.
Then, there are other banks which face similar predicament.
“Frankly, nobody knows what’s going to happen to some of the Islamic banking experts, especially, those who are employed with these banks… They can’t work elsewhere, not even in commercial banking set-ups since they wouldn’t have Islamic banking operations,” said the source.
And if the government somehow allows the QNB to retain its Islamic banking services, the step would be impartial.
“Well, the Islamic banks could buy the 16 branches in question, but that wouldn’t be fair to the conventional banks who built the network and customer base with so much difficulty and over years,” he said.
Incidentally, the QCB’s move comes at a time Islamic banking is witnessing record growth in the country (which underlines the need to rather make Islamic banking more competitive).
Islamic banking is estimated to command a market share of around 20 percent.
Some experts say a much better option would be to ask the affected banks to declare their Islamic banking branches separate entities altogether so that the confusion between their conventional and Islamic banking activities are removed for ever.
“Since the main objection of the QCB is that conventional banks are messing up between their commercial and Islamic banking activities, it would be wise to make the two areas into separate entities,” said a banking industry source.
There are four Islamic banks in the country at the moment and the pace at which Shariah-compliant banking has been growing in the country, surely demands more banks in the arena, he argued.
Sources say if a bank or two have committed an error and that is why the QCB is clamping down on the entire conventional banking industry, the move should not be justified. Only the erring bank or banks must be punished.
The Peninsula
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