Conventional banks in Qatar will not be allowed to invest in sukuk, or Islamic bonds, following the closure of their Shariah-based windows, International Monetary Fund has said in its country report.
An IMF team, which visited Qatar late last year said the QCB had informed the International Monetary Fund’s Qatar mission that “conventional banks would not be allowed to have Islamic subsidiaries, and they would not be allowed to invest in sukuk.
“Also, conventional banks with Islamic windows in other GCC countries will not be allowed to have an Islamic branch in Qatar,” the report said.
IMF said several issues merit future consideration by the QCB when implementing the directive, to ensure that the desired objectives are met.
“The authorities should consider extending the timeline for unwinding Islamic operations if necessary, so as not to place unduly high costs on conventional banks with Islamic windows. They should manage the impact on banking sector competition in view of the decline in the number of institutions providing Islamic banking services from 12 to 4.
“In order to reduce the risk of oligopolistic behaviour among the remaining Islamic banks, the central bank could permit the re-organising of Islamic windows as subsidiaries.
IMF urged the authorities to monitor the impact of the segregation on the availability of Islamic products and the banking sector’s capacity to provide syndicated loans to ensure effective financial intermediation.
“They must manage the impact on liquidity management, since the segregation could affect liquidity and rates in the inter-bank market and Islamic banks’ capacity to engage in effective liquidity management.
“The authorities should consider ironing out the issues related to duration mismatch and funding gaps since conventional banks are permitted to retain assets until maturity but not renew deposits upon maturity. They should resolve potential issues of regulatory harmonisation in the GCC monetary union, since other GCC countries continue to allow conventional banks to pursue Islamic banking activities.”
QCB had indicated that they were in the process of designing new Islamic liquidity management instruments, IMF said.
“QCB had also indicated deposits behind Islamic assets in the special portfolios can be renewed, but the renewals cannot exceed the original maturity. In this respect, it is encouraging that the QCB’s plans include the provision of funds by the central bank for conventional banks to fund their special Islamic asset portfolio if needed,” IMF said.
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An IMF team, which visited Qatar late last year said the QCB had informed the International Monetary Fund’s Qatar mission that “conventional banks would not be allowed to have Islamic subsidiaries, and they would not be allowed to invest in sukuk.
“Also, conventional banks with Islamic windows in other GCC countries will not be allowed to have an Islamic branch in Qatar,” the report said.
IMF said several issues merit future consideration by the QCB when implementing the directive, to ensure that the desired objectives are met.
“The authorities should consider extending the timeline for unwinding Islamic operations if necessary, so as not to place unduly high costs on conventional banks with Islamic windows. They should manage the impact on banking sector competition in view of the decline in the number of institutions providing Islamic banking services from 12 to 4.
“In order to reduce the risk of oligopolistic behaviour among the remaining Islamic banks, the central bank could permit the re-organising of Islamic windows as subsidiaries.
IMF urged the authorities to monitor the impact of the segregation on the availability of Islamic products and the banking sector’s capacity to provide syndicated loans to ensure effective financial intermediation.
“They must manage the impact on liquidity management, since the segregation could affect liquidity and rates in the inter-bank market and Islamic banks’ capacity to engage in effective liquidity management.
“The authorities should consider ironing out the issues related to duration mismatch and funding gaps since conventional banks are permitted to retain assets until maturity but not renew deposits upon maturity. They should resolve potential issues of regulatory harmonisation in the GCC monetary union, since other GCC countries continue to allow conventional banks to pursue Islamic banking activities.”
QCB had indicated that they were in the process of designing new Islamic liquidity management instruments, IMF said.
“QCB had also indicated deposits behind Islamic assets in the special portfolios can be renewed, but the renewals cannot exceed the original maturity. In this respect, it is encouraging that the QCB’s plans include the provision of funds by the central bank for conventional banks to fund their special Islamic asset portfolio if needed,” IMF said.
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