GCC urged to follow unified Islamic finance regulations

The Gulf Co-operation Council (GCC) should have a unified rule under one regulator for Islamic investment products for ensuring lower cost of funds, according to Islamic Wealth Management (IWM) Report 2012.
“The GCC countries could take a leadership role by establishing standards for the registration of Islamic investment products with one regulator,” the Bank Sarasin report said.

The report was launched by Bank Sarasin managing director and head of Islamic Finance Fares Mourad and Monzer Kahf, a leading Islamic finance scholar.

Such unified rule would allow asset managers to market the product to clients across the region, it said.

Currently any offering needs to comply with different regulations in Bahrain, Kuwait, Saudi Arabia, Oman, Qatar and the UAE, resulting in a lengthy and expensive registration process, the report said. “Reducing expenses and increasing the availability would increase competition, benefiting local investors and further the GCC’s development as a centre of excellence for Islamic finance.”

Although unified rules could be done either a state, region or Arab league level, it would be better to have a centralised agency that could interpret the legislations regarding Shariah investments, Mourad said.

Asked whether there was a need for a separate entity for the regulation and supervision of Islamic investments and products, he said “I really would like to have this” but it was for the regulators in the respective jurisdictions to decide.

Kahf said the Islamic Financial Services Board could take the lead in the centralised agency as it consisted of central bankers in the Muslim countries. “Once you have such an agency, there is no need for separate Shariah boards as lawyers specialised in the field could suffix its role,” he added.

The report also took note of the constant criticism of certain Islamic finance structures such as the ‘Tawarruq’, which involves purchasing a commodity with deferred payment and selling it to a third party for cash, hence replicating the effect of a loan.

“Regulations need to be adjusted to allow financial institutions to engineer products that fit the spirit of Islam while meeting legal and regulatory requirement,” it said.

In this regard, the report cited an example of recent co-operation between the halal industry (mostly foodstuffs) and Islamic finance – two sectors with similar goals that have had little contacts.

With issues related to the environment and social practices as well as corporate governance getting more attention, it said there has been more reporting on corporate social responsibility, which is important to Islamic finance.

“There is still much room for improvement with higher standards and a more strategic approach required at the state, company and private level. The Muslim countries face the greatest challenges,” the report said.


http://www.gulf-times.com

Conventional banks ‘cannot invest in Islamic bonds’

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.


http://www.gulf-times.com

Qatar Islamic banking directive to set example for other markets

The deadline of Dec. 31, 2011, as per the directive issued by the Central Bank of Qatar (CBQ) in January 2011 requiring the country's conventional banks which have opened Islamic banking windows to close them down, has passed almost unnoticed.

Despite the initial outcry at the time of the announcement of the directive stressing that it was too arbitrary and the grace period was too tight, there has been no upheaval of the Islamic finance industry in the emirate. Some Islamic bankers are now arguing that the move was required to stem the alleged rampant co-mingling of conventional and Islamic funds at some of the Islamic banking windows, and that the Qatari Islamic banking sector has been successfully re-aligned and consolidated.

The successful implementation of the directive in Qatar could well have implications for other markets in the region and beyond where Islamic banking windows are prevalent. The clear message of the directive is that dedicated standalone Islamic banks are preferable to half-way houses where co-mingling and all sorts of compromises are possible if not the norm. They also give greater legal, regulatory and Shariah compliance clarity and comfort to those depositors and investors interested in Islamic finance.

The affected banks included the Al-Islami window of Qatar National Bank (QNB), the largest bank in the emirate; Commercial Bank of Qatar; Doha Bank; HSBC Amanah; Ahli Bank; Al-Khaliji Bank and International Bank of Qatar (IBQ), which between them had 16 Islamic banking branches in Qatar.

On Jan. 1, 2012 it became clear that only one such window, Al-Yusr of International Bank of Qatar, was acquired by two local Islamic banks — the retail banking assets and business was acquired by Barwa Bank, the newest of the Qatari Islamic banks, while the corporate banking assets and portfolio was acquired by Qatar Islamic Bank (QIB), the largest Islamic bank in the emirate.

The other banks had wound down their Islamic banking window operations complete with removing all signage and of course not opening any new accounts or businesses. Existing Islamic banking customers were in some cases given the option of switching to the banks' conventional banking business or in other cases to continue payments until affected Islamic financing facilities matured.

An unrepentant CBQ Gov. Sheikh Abdullah bin Saud Al-Thani as late as mid December 2011 warned the affected banks that the directive was "irreversible" and that they must comply with its provisions. In his keynote speech to the 8th International Conference on Islamic Economics and Finance (ICIEF) which was held in Doha in December 2011, Al-Thani articulated the reasons behind the central bank's directive, which he confirmed is irreversible.

The Islamic Banking Windows, according to Gov. Al-Thani, made it difficult for the banking regulator to effectively implement its monitoring and supervision of these windows.

This issue could not have been highlighted more aptly during the acquisition of Al-Yusr's Islamic Retail Banking business. As the first such transaction to be closed in the region, albeit under Qatari law, there were some legal and other regulatory challenges which UK law firm, Eversheds, which acted for Barwa Bank, successfully navigated through within the provisions of existing Qatari legislation.

"The IBQ window was not a separate legal entity. As such, its assets and liabilities were a part of the conventional bank. We therefore had to consider how best to separate and then package and transfer these assets and liabilities. There were also challenges concerning transition services that were required post completion to serve the transferring customers," explained Amjad Hussain, partner and head of Islamic Finance at Eversheds, in a recent interview.

The central bank also found that the coupling of conventional and Islamic banking activities at the same institution, undermined competition and transparency in the affected banks. At the same time, there is much confusion over the balance sheet treatment of the assets and liabilities of the Islamic banking windows in the financial reports of the conventional banks, which are not separated. As such this has implications for the risk management process of the institution.

Al-Thani gave the thumbs up to the Qatari Islamic banking industry which boasts four Islamic banks — Qatar Islamic Bank, Qatar International Islamic Bank, Masraf Al-Rayan and Barwa Bank. These banks, he added, have a crucial role in the country's banking sector and economy, in compliance with the objectives of the Qatar Vision 2030 and its first application through the First Strategic National Development Project 2011-2016.

He reminded Qatari Islamic banks of their partnership role in financing economic development and projects in the country, and stressed that he was confident that the Qatari Islamic banks will rise to and are capable of taking up this challenge together with their conventional counterparts. The Islamic banking sector has a 20 percent market share of the total banking industry in Qatar, which has four dedicated standalone Islamic banks.

It was way back in 2005 that the CBQ allowed conventional banks to launch Islamic Banking Units (IBUs), which have contributed to the growth of the sector and to the profitability of the banks, and which have attracted an estimated customer base of just under 100,000.

Eversheds' Hussain rejects any notion of arbitrariness in the action of the CBQ in issuing the directive. The action, he contended, is "part of a wider process of supporting and shoring up the banking industry in Qatar. You have to look at it in the context of the proactive approach of the central bank during the recession when it helped a number of local banks to remove some of the toxic debts that they had exposure to. The CBQ is also making sure that there are enough opportunities for all the market players."

Previously, the Islamic banking windows were barely competing because of co-mingling issues and because they were able to offset overheads through the conventional banks. There was a feeling that the market was not as transparent as it could be. In addition to regulatory issues, the central bank had to deal with two separate businesses dealing with different banking activities - Islamic and conventional.

"I believe competition was an issue, because the pure Islamic banks were seen to be at a disadvantage. The Islamic banking windows at the conventional banks were able to use backroom services in their banks. There were also regulatory and corporate governance concerning how manage different banking platforms under one roof which is what the conventional banks were trying to do. This resulted in a culmination of issues which the CBQ is trying to address in its efforts to improve out the banking sector," explained Hussain.

http://arabnews.com

Islamic Banking in Qatar By Muath Mubarak

Qatar is one of the key players and most exciting countries in the GCC with its expanding economy as an oil- and natural gas-rich nation. It has initiated multi-billion-dollar projects in line with the four development pillars — human development, society, economic development and the environment — aimed at achieving  developed nation status by 2030 without compromising on its Islamic principles and Arab identity.

The Islamic banking industry remains steady with healthy growth and a positive outlook even after the recession while challenging the conventional sector in terms of a dynamic, fast-paced and competitive environment. Demand for it is driven by multiple factors, based on Islamic principles and its potential to augment fi nancial engineering blended with a socially and ethically responsive fi nancial system. Despite being a relatively new concept for most of the countries with religious sentiments, Islamic fi nance has been spreading fast and gaining momentum in almost all the countries, sparked by the success of the Asian and Middle East countries and by the understanding of the advantages it provides.

A total of 18 banks, including new entrant Barwa Bank, a full-fl edged Islamic bank, currently operate in Qatar with 210 branches as of 2008. They comprise local and foreign banks supervised by the Qatar Central

Bank (QCB) which was incorporated in 1993 when it took over the responsibilities of the former Qatar Monetary Agency.

The QCB performs certain functions to ensure the liquidity and solvency of the banking system in Qatar. It grants loans to banks, issues instructions, stipulates auditing rules, and conducts inspections of any bank at any time, among others. The QCB has introduced major international standards applicable to banking supervision and regulations based on the Basel Accord. It has set the minimum capital adequacy regulations applicable to Qatari banks at 10%, compared to the Basel rate of 8%.

A major change took place in the Qatar banking sector in February 2001 when the QCB removed its ceiling on interest rates for local currency deposits, thereby freeing the banking system from all interest rate policy restrictions. This opened new ways of dealing without interest involvement which is prohibited in Islam.

This amendment allowed Islamic banks to enter into the untapped market segments in the country. Qatar National Bank and Commercial Bank set the industry trend to adopt the Islamic banking window model in the country during 2005-2006. It led to the setting up of four full-fl edged Islamic banks and 25 Islamic banking window model branches.

According to reputed credit rating agencies, Qatar’s strong operating environment and high level of prosperity will bring about more quality opportunities for banks. These agencies have rated most of the banks as having a high level of creditworthiness and stable outlook over the short and long terms.

The total assets of Islamic banks increased by QAR21.7 billion (US$6 billion) to QAR63.1 billion (US$17.3 billion) in 2008 for a 52.3% growth rate while the conventional banks’ total asset growth rate was at 38.3%. Customer deposits growth also shows that Islamic banks’ unrestricted investments accounts grew faster than that of customer deposits in conventional banks. This clearly shows the amazing growth of the industry in Qatar, and it is expected to expand further based on the Qatar National Vision 2030 program.

The growth of the industry is facilitating the emergence of more Shariah compliant businesses while the conventional sector making greater efforts to increase its market share. As the trend-setting market leaders, Islamic banks should continuously adopt innovative ideas and unique ways of doing business in terms of marketing the Islamic banking asset side as well as liability side products on the basis of long term objectives.

The potential for Islamic banks in Qatar is tremendous with the increase in demand in the housing sector, real estate investment products as well as debt and capital market instruments (Sukuk) for projects. Increasing religious consciousness and demand for alternative Islamic banking products are also expected to spur the further growth of the industry.

Muath Mubarak

Coordinator, fi nancial control and strategic planning

Barwa Bank

Qatar

Tel: +9746844847

E-mail: muath2015@gmail.com

Qatar - More clarity unveiled: Comments by Muath Mubarak

Still reeling from the news of Qatar Central Bank’s (QCB) directive to shut down Islamic banking windows in the country by year end, bankers are both optimistic and pessimistic about the exercise. QCB’s shocking decision is to separate Islamic banking windows from conventional banks without issuing additional banking licences. This translates into conventional banks with Islamic windows being forced to wind up their Shariah compliant business without the option of establishing an Islamic banking subsidiary.

Practitioners, while grappling with the gravity and reasoning behind the abrupt decision, have hailed it generally as encouraging. Muath Mubarak, Qatar based banking practitioner considered it as a positive move for the Islamic banking industry as it will have clear demarcations between conventional and Islamic banks and brings more transparency and improved governance. The comingling of funds between conventional and Islamic has been cited as the major reason behind this decision. Referring to QCB’s motivation to maintain focused business growth, be it Islamic or conventional, Muath highlighted that the steady growth and increasing demand for Islamic banking products along with the push for standardization and governance of banking practices may have played their part in the decision.

The comingling of funds has also raised concerns among practitioners, as Muath explained that this could give rise to the exploitation of large combined balance sheets by conventional fi nanciers to go for bigger Islamic transactions. He further added that this also creates monitoring and supervisory issues on both the banker’s and regulator’s side. On the conventional banker’s side, Salah Jassim Murad, CEO of Ahli Bank, said that QCB’s decision will reduce the number of players in an already saturated market. The gain of Islamic banks will be at the expense of the loss of revenue streams from the Islamic windows of conventional banks. Salah

said as a regulator, QCB has no obligation to compensate for loss of revenue, if any. The conventional banks will have to adapt quickly to make up for any losses.

In terms of existing long-term Islamic fi nancing contracts, Salah commented that the decision gives banks the option whether to run with the term fi nancing until their maturities or sell. He said that the affected banks are currently examining all options including partial conversion of existing contracts into conventional terms. Also on the asset side, he added that the banks can transfer their Shariah compliant investments to the conventional book. While the affected banks still mull over the details and course of action for the disposal of Shariah compliant business arms, Muath said in the long run, this decision is expected to leave a positive mark on Islamic finance in the region

This was published by Red Money in IFN on 16-Feb-2011

Qatar ban on Islamic Banking windows: Good or bad?

By Dr Sayd Farook

 

March 2011

Early in February, the Qatar Central Bank (QCB) issued a circular declaring it 'has been decided to terminate the activities of Islamic finance services' offered by conventional banks. Banks with Islamic windows have until end of 2011 to comply with the requirement. (See background below).

The reasoning behind the decision has been the subject of wild speculation in the market. Some bankers have stated that such decisions, taken on a seemingly ad-hoc basis, may hurt Qatar's top spot in the 'Transparency in Doing Business' ranking.

According to the Peninsula newspaper , the conventional banks' Islamic window branches (now amounting to 16) have widened their customer base to some 80,000 individuals and corporate entities.

"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 an industry source to the Peninsula.

It is noteworthy that the circular relates to all conventional banks with Islamic operations, even if the balance sheet is segregated. However, if a separately capitalised Islamic bank were licensed (even if owned by a conventional bank), presumably, it would not fall under the regulatory ban imposed here.

Criticism 1. Access to international capital markets limited

Some commentators have condemned the move, stating that the QCB did not account for the potential impact on the market, and perhaps intended to give the Islamic banks a free ride. The critics also state that the major international banks have been unilaterally responsible for the major innovations in the Islamic finance industry. One commentator argued that international banks are the sole access to global capital markets for Islamic banks, and that Islamic banks will not be able to support transactions of the magnitude that are currently financed in the region.

Counterpoint

The QCB directive is directed at all conventional banks with Islamic windows, not just multinational ones. The directive is not prejudiced towards international banks; rather, all conventional banks are affected by it. Further, the ban of Islamic operations does not necessarily preclude arranging and advisory services that international banks conduct.

Criticism 2. Efficiency is wholly ignored

Another criticism of the decision is that it prevents banks from choosing the most efficient operational business model. Islamic windows allowed conventional banks to offer Islamic services directly from their existing network; bypassing the cost and overhead associated with setup of separate Islamic operations. Further, the marketing reach and network of the conventional bank is much stronger than an Islamic bank. Finally, conventional banks could gauge demand via Islamic windows, before heavily investing in setup costs of a separate entity By requiring conventional banks to set up new fully segregated Islamic banks, the barrier to entry is significantly increased, thereby limiting the entry of new players into field of Islamic finance; arguably stifling competition, and ultimately hurting the customer.

Counterpoint

There is no clear monitoring of activities of the Islamic window in relation to its conventional parent. If operations, marketing and potentially the balance sheet are mixed, then it is difficult to verify the revenue and cost attributed to the Islamic window. Further, a number of complications arise when dealing with customers. Does the bank staff promote Islamic products or the conventional equivalent to a neutral customer? A conflict of interest may arise if conventional staff members are unable to cater to and service customers interested in Islamic finance. In the absence of specialized training, staff may not be aware of the salient features of the Islamic banking products, especially as it pertains to contracts, legal documentation and implications of default and early settlement.

Criticism 3. Limiting competition

'Since 2005, there has been a lot of improvement in Islamic banking services as a result of the QCB's liberalised policy of permitting commercial banks to offer Sharia compliant banking services' said one source to Peninsula, a Qatar newspaper. A number of critics have stated that QCB's most recent move could also limit competition, creating a banking monopoly for Islamic banks. They also argue that the existing Islamic banks will have serious difficulty in managing the service flows from the new businesses. Both points indicate that services can only be expected to deteriorate rather than improve.

The QNB Islamic branch currently services 45,000 customers generating profits of around QR 900m last year. Having to forego such a significant chunk of business will trouble banks that have heavily invested in building up their Islamic franchises.

Counterpoint

To counter this loss in opportunity, the conventional banks can seek to negotiate with the QCB, possibly setting up independent Islamic banks with completely segregated operations and accounting from the conventional parents. This would, simultaneously, ease the concern of the QCB, while allowing conventional banks to retain their Islamic finance market share.

Benefits of the decision

While the short term impact of the decision may be difficult for the country's conventional banks; the QCB move may be heralded as foresight, in a region where regulation usually follows bad practice.

Weak Shari'a Governance

Shari'a advisors have long been concerned that Islamic banking windows are the cause of a number of serious Shari'a compliance failures . Many 'innovative' products have actually hurt the reputation of Islamic finance; earning the criticism that Islamic finance is just a work-around of conventional finance products.

For instance, the Murabaha based deposit is sometimes accepted by the Islamic banking windows, without any ensuing Murabaha transaction taking place upon deposit. At the end of the period, the Islamic bank client receives his deposit plus a return; allegedly earned from a deferred payment Murabaha transaction. There have been countless anecdotal reports of these practices occurring in conventional banks. However, it has been very difficult to verify or refute these reports, as there is no mandated independent Shari'a audit for these conventional banks.

By requesting all banks to establish separately capitalized Islamic banks or subsidiaries, Sharia' governance is better monitored and establishes a stronger environment for transparency. Each institution can have its own independent Internal Shari'a reviewer/auditor in place and thereby maintain Shari'a compliance within the institution.

Some have argued that such an extreme measure to ban all operations is not necessarily the only option to ensure proper Shari'a governance. Sh. Taqi Usmani argues that as long as there a permanent Shari'a unit in addition to the Shari'a supervisory board and a complete separation of accounts, staff, office and funds, then it would not be mandatory that a separate Islamic bank has to be formed.

Leakage

Banning windows also ensures that Islamic funds do not leak out into the conventional banking system, strengthening the base of authentic Islamic finance. Islamic banking windows can take Islamic funds and then recycle it within the conventional banking system. Islamic banks, however, can only accept money that they will invest in their own assets (through Wakala and Mudaraba). On the other hand, Islamic windows, are not bound by the same restrictions, and can reinvest into conventional markets. Since the first transaction (customer deposit) is merely a sale (Muabaha), the second leg can be anything, as long as the sale is completed.

Islamic finance purists say that by allowing such window operations, Islamic banking assets are being funnelled into the conventional system rather than being placed back into the Islamic finance ecosystem.

This can also be evidenced in the management of reserves in Islamic window operations. The conventional treasury department usually handles money-market operations. Daily surpluses are usually passed on to the conventional treasury for overnight transactions for earning some marginal income. Sometimes, treasuries may not have enough surplus from Islamic reserves to cover its positions. In these instances, it would use the proceeds from sale of conventional papers to cover the Islamic deposit obligations at maturity.

If a separate subsidiary with a separate independent treasury is established, the Islamic bank would not have to commingle funds with the conventional treasury. Further, all the funds accepted would have to be directed at Islamic funds.

Conclusion

The decision by the QCB to limit the Islamic banking operations of conventional banks came as a huge blow to the conventional banks in Qatar. Commentators considered it an imprudent move to limit competition in the high growth Islamic banking market of Qatar while limiting access to global markets.

Despite the short term impact on the affected banks, it is the author's view that it is for the overall benefit of the Islamic finance industry. The ban would alleviate the serious governance/control failures that plague Islamic operations in conventional banks while also preventing the leakage/mixing of Islamic funds with conventional funds. It would be advisable, subject to policy restrictions, that the QCB allow the conventional banks to apply for new Islamic banking licences for their Islamic windows. Where this is not possible, conventional banks should at least be able to merge their Islamic assets and create two to three fully segregated Islamic banks.

Regardless, the decision by the QCB will be observed closely by regulators elsewhere in the region to ascertain the impact on the growth and transparency of the Islamic finance industry in their jurisdictions. If it does and given the support from Shari'a scholars, it is likely that some of these jurisdictions will consider such a move. Malaysia has required the same of its conventional banks and it was considered a pioneer when it did. Given the potential move towards such requirements, conventional banks should therefore consider whether their operating models are optimal going forward.

About the Author:

Dr. Sayd Farook is the Global Head of Islamic Capital Markets at Thomson Reuters, USA. As Global Head of Islamic Capital Markets, Dr Farook is the principal architect of Thomson Reuters' vision of a global interconnected and diversified Islamic finance and capital markets without borders. He holds a Ph.D. in Islamic Finance, Business and Law degrees from the University of Technology Sydney and is a Certified Islamic Professional Accountant (CIPA) from AAOIFI.

Disclaimer: This article represents Authors views in his personal capacity and does not in any way represent the views of Thomson Reuters.

© Dinar Standard 2011

QCB's Islamic banking rule shocks banks

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

Best Domestic Middle East Islamic Bank award for Doha Islamic

Doha Islamic has been adjudged as the  Best Domestic Islamic bank in the Middle East - 2009. The accolade was conferred by the prestigious Banker Middle East Awards 2009 for excellence in a glittering ceremony held at Emirates Tower Hotel, Dubai. The ceremony was attended by elite gathering of government officials, academicians, regulators, dignitaries and senior bankers.

The award conferred on Doha Islamic is in recognition of the trust and confidence by the local financial services community and an acknowledgement of Doha Islamic’s customer centric approach and progressive outlook committed in providing one-stop-financial service experience to its ever expanding customer base.

Doha Islamic commenced its banking operations on June 15, 2005. Nowadays, Doha Islamic has a network of five branches in Qatar and dedicated in providing new and innovative Islamic banking products and services. This award reflects the continuous growth of Doha Islamic and efforts in excelling within the Islamic Banking industry noting that the total assets has reached $880m within a span of three years. Doha Islamic provides financial corporate solutions to finance new and existing business, in order to make it grow and prosper, be it for specific commercial commodities, production materials or infrastructure. Furthermore, an array of products and services, tailored to meet customers  financial needs, are available at Doha Islamic and are supported by a team of highly qualified Consumer Finance representatives.

Sheikh Fahad bin Mohammad bin Jabor Al Thani, Chairman Doha Bank, said: “Doha Islamic is taking many strategic initiatives to provide the best value to our customers, our stakeholders and to our society at large. Our dedicated team of professionals has consistently set high standards in performance, innovation, security and quality, being the hallmarks of Doha Islamic, in this highly competitive market. It will be our ongoing challenge to manage and sustain these strengths and Doha Islamic is proactively enhancing these in the current year.

Yousuf Hashim Al Yousuf, Acting Head Doha Islamic while receiving the award said: “It is the Doha Islamic’s Board’s visionary and participative leadership philosophy, which has taken Doha Islamic to newer heights. The bank has been completely transformed into a dynamic entity with strong values and customer-centric approach. The Board has steered Doha Islamic to become a market pioneer in introducing innovative products and services.

Doha Islamic is determined to build on a solid base by undertaking the necessary restructuring and creating an image, while also enhancing productivity through the employment of state-of-the-art technology. The enhancement of Islamic banking through partnership with other Islamic institutions and the development of a wide range of Islamic products is an integral part of Doha Islamic’s strategy. This step comes in line with the strategy to meet the increasing demand in Islamic banking products and services, and Doha Islamic offerings in particular, from various sectors of the community. As there will be new branches in the pipeline, this will enhance Doha Islamic’s delivery channels across Doha and will increase banking convenience for their customers.

Link: http://www.thepeninsulaqatar.com/Display_news.asp?section=Business_News&subsection=Local+Business&month=December2009&file=Business_News2009122191813.xml

Qatar Islamic has $15m exposure to Dubai World

Qatar Islamic Bank said on Thursday it had exposure to a Dubai World Islamic bond maturing in 2017 worth QR54m ($14.84m).

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DUBAI DEBTS: Dubai's state-owned conglomerate is restructuring debts worth $26bn. (Getty Images - for illustrative purposes only)

The lender is the first Qatari bank to announce its exposure to the Dubai state-owned conglomerate, which is restructuring debts worth $26bn.

"The financial impact currently will affect the negative investment fair value reserve," it said. "QIB will keep observing the situation and its financial consequences which will be disclosed accordingly." ($1=3.638 Qatari Riyals)

Link: http://www.arabianbusiness.com/575170-qatar-islamic-has-15m-exposure-to-dubai-world

Zakat fund collection drops

The global financial crisis has also adversely impacted Zakat collection this year. There has been a drop of QR5m in Zakat collection during the seven-month period from April to October this year, the state-run Zakat Fund has reported.

Although, Zakat Fund officials did not specify reasons for the drop, it is understood it could be an outcome of the world economic turmoil. Zakat is mostly paid by eligible Muslims during the holy month of Ramadan. The collection this Ramadan fell by nine percent.

The Zakat Fund collected QR111.4m between April and October as Zakat, which was QR5m less as compared to QR116m which was collected in the corresponding period last year. This was disclosed by Khalifa Al Kubaisi, head of finance and investment of Zakat Fund at the Ministry of Awqaf and Islamic Affairs, at a press conference on Sunday.

Of the QR111.4m, he said about QR94m was collected as Zakat while the remaining QR17.4m was through other kinds of donations. He said Zakat collection during Ramadan last year was to the tune of QR85m, while this Ramadan the figure was QR78m.

Zakat Fund has a database of beneficiaries and supports a large number of needy families as well as individuals.

Link: http://www.thepeninsulaqatar.com/Display_news.asp?section=Local_News&subsection=Qatar+News&month=November2009&file=Local_News2009112435516.xml

Barwa Bank set to start operations

Barwa Bank, a major new financial services provider in Qatar yesterday announced the soft launch of its operations in Doha.

Established in Doha with an authorised capital of QR1bn, Barwa Bank is licensed and regulated by the Qatar Central Bank (QCB) and is a fully owned subsidiary of Barwa Real Estate Company.

Built on the firm principles of Shariah finance, the bank will provide an inclusive and friendly retail banking environment. It is also committed to being a first class local employer, with a comprehensive staff training programme to ensure the delivery of excellence in customer service, the bank’s officials said.

The main branch, located on Doha’s Grand Hamad Street, will have both men and women’s branches and will offer current, savings and fixed deposit accounts with a view to rolling out a range of innovative banking products and services in the coming months.

Customers can currently access bank services via ATM, mobile phone banking, e-banking and 24 hour customer call centre.

Barwa Bank also yesterday announced that it has been appointed as Mandated Lead Arranger by Qatari Diar Real Estate Investment Company (Qatari Diar), the leading Qatari real estate developer and investment firm, to provide QR500m as part of a QR4bn Shariah-compliant syndicated facility to help finance European investments.

Mohammed Abdul Aziz Al Saad, Acting CEO of Barwa Bank said of the soft launch, “Today marks the beginning of a new era in banking in Qatar. We will offer the public a totally fresh and exciting approach to modern banking practices. The Barwa Bank brand will stand for quality of service, creativity and innovation.”

“Barwa Bank will not only be a bank for the post credit-crunch era but also one that is perfectly aligned with Qatar’s future ambitions and aspirations,” he said.

“We aim to lead the way in innovative Shari’ah banking for the current and future generations of Qatari society. We will remain totally committed to setting the newest standards in customer service.”

He added that the launch was a major step. “Having carefully consulted on the banking needs of today’s society, we have designed a fresh and creative approach that will break the mould, creating a wholly new, easier and innovative customer experience. In the next few months and into 2010 we will introduce these new products and services which will be totally unique and set us apart.”

Pointing to the Murabaha syndicate participation with Qatari Diar which follows the bank’s recent Murabaha financing agreement with Masraf Al Rayan, Al Saad said: “We expect to help originate and participate in Qatar’s most prominent investments both locally and internationally and look forward to making further high profile announcements in the coming months.”

Link: http://www.thepeninsulaqatar.com/Display_news.asp?section=Business_News&subsection=Local+Business&month=October2009&file=Business_News2009102991815.xml

Qatar, Oman benchmarks hit new highs

DUBAI: The Oman and Qatar benchmarks claimed new milestone highs, but trading was mixed on Gulf Arab markets as early morning declines in Asia spurred regional profit-taking.

Gulf indexes were subdued, with none moving by more than one percent. Abu Dhabi rose and Bahrain edged higher, but Saudi Arabia fell for a fifth day as Saudi Basic Industries Corp (SABIC) declined and Dubai and Kuwait also retreated.

“Gulf markets lag other emerging markets and so we’re seeing the region play catch up with the rest of the world,” said Rami Sidani, Schroders Middle East head of investment.

“Oil prices above $70 give a strong boost, but we will see profit-taking along the way, which is typical of any stock market.”

Qatar’s index shrugged off early losses to hit an 11-week closing high, rising for the seventh session in eight as banks advanced, despite volumes falling by almost a third from the day before.

Qatar Telecom (Qtel) surged 4.9 percent to a 49-week high after the firm confirmed it was interested in Portugal Telecom’s plans to sell its stake in Morocco’s second-largest telecoms company, Meditel. Qtel is not included on Qatar’s index.

Abu Dhabi hit an 11-week high after Emirates Telecommunications Corp (Etisalat) climbed 2.4 percent to its highest finish since mid-June.

Etisalat’s gains followed an extraordinary meeting at regional rival Zain, where shareholders of the Kuwait operator voted to remove a cap on share ownership that could pave the way for a stake sale.

In July, Etisalat said it was interested in buying a 51 percent stake in Zain.

“I don’t necessarily think Etisalat’s rise was because of Zain, but that is what the market chatter is saying,” said Ali Khan, managing director and head of brokerage at Arqaam Capital.

“You could argue there was buying because Etisalat’s stock has lagged the market since May. An acquisition is potentially not very good news for the buyer’s stock if the company has to write a large cheque.”

Zain’s shares closed flat, holding steady at the previous day’s 11-month closing high. Its chief executive told shareholders the firm was not in talks to sell a stake in the entire company.

“I believe (Zain’s) current price is exaggerated, with investors trying to price in any developments in the shareholder space,” said Schroders’ Sidani.

“Everything is priced in at current levels. Even if a strategic investor was to pay a premium for a substantial stake in Zain, it does not mean this would benefit minority shareholders.”

Zain’s market capitalisation is $22.1bn, while Etisalat is worth $20.4bn, according to data.

Moribund trading helped drag Saudi Arabia’s index down 0.7 percent, taking its losses to 2.2 percent in the past week.

SABIC fell 1.8 percent and rival Rabigh Refining and Petrochemical Co lost 0.9 percent as a six percent drop in Chinese equities stoked worries about the pace of economic recovery and demand for the Saudi manufacturers’ products.

Link: http://www.thepeninsulaqatar.com/Display_news.asp?section=Business_News&subsection=Local+Business&month=September2009&file=Business_News2009090115852.xml