Bloomberg/Dubai
Qatar, in requiring banks from HSBC to Doha Bank to close units offering Shariah-compliant services, is emulating Malaysia, the world’s biggest market for Islamic debt.
The Gulf nation, whose economy is growing at the fastest pace in the world, sent an order to banks this week requiring non-Islamic commercial lenders to shut operations that comply with Shariah law by year-end, according to the central bank circular. Malaysia allows standalone Islamic banks and subsidiaries to provide the services. (source)
“The central bank’s directives will help separate Islamic from non-Shariah resources in the banking sector,” Manoj Kulkarni, the head of credit research at brokerage SJS Markets in Hong Kong, said yesterday. “It will also attract more Islamic banks to the industry. However, it’s not good news for conventional banks, which stand to lose revenue.”
Qatar’s decision sets the nation on a path towards developing its Islamic finance industry in the model of Malaysia, according to Mohd Daud Bakar, the Dubai-based Shariah scholar who has approved more Shariah-compliant bond deals than any other scholar, based on data compiled by Bloomberg.
Malaysia has 337.6bn ringgit ($111.3bn) of Islamic banking assets, or 20% of the nation’s total, the Finance Ministry’s 2010-2011 economic report shows.
“It is a positive step,” Bakar said. “This could be a good move for competition in Qatar.”
Qatar, holder of the world’s third-largest gas reserves, is home to three Islamic banks, 11 domestic banks and seven foreign bank branches, according to a 2009 US Department of Commerce report.
It took Malaysia about 20 years to ensure Islamic financial operations were restricted to standalone banks and subsidiaries, Bakar said. “It’s more of preparing the right strategies and human capital to achieve what Malaysia has achieved at the moment,” he said on Monday
Malaysia’s Islamic banks and subsidiaries “are requested to institute proper firewalls and segregation of funds to ensure comprehensive Shariah compliance in their business operations,” Bank Negara Malaysia said in an e-mailed statement yesterday.
So-called Islamic windows of domestic lenders transformed into full-fledged financial institutions between 2005 and 2008, the bank said.
Qatar’s order prohibits banks’ Islamic branches from accepting new deposits and undergoing new transactions this year. The banks are required to close their Shariah-compliant branches by December 31, according to the statement sent to banks.
Neighbouring Bahrain, home to the world’s largest number of Islamic banks, allows conventional lenders to open Shariah-compliant windows, according to an e-mailed response from the central bank’s spokeswoman. The island state has 27 Islamic banks, according to the central bank website. Malaysia has 17 Shariah-compliant banks.
Qatar Islamic Bank, the nation’s largest Shariah-compliant lender, may be interested in buying the Islamic banking units of the country’s commercial banks, Ahmad Meshari, the acting chief executive officer said in Doha yesterday.
The bank, which has a 35% market share, “stands to gain the most” from the central bank’s directives and “would potentially be able to buy the conventional banks’ Islamic portfolios at favourable terms,” according to a Goldman Sachs Group report dated February 7.
HSBC Amanah, the Islamic banking unit of Europe’s largest bank, is “communicating with the Qatar Central Bank to seek clarification on this issue,” Global chief executive officer Mukhtar Hussain said on Monday. HSBC has had operations in Qatar since 1954.
“It’s not a positive for HSBC, but I don’t think it’s an overriding negative,” Tarek Elalaily, the London-based director of Middle East and North Africa fixed-income sales at New York-based Cantor Fitzgerald, said on Monday. “QNB and Doha Bank are quite substantial banks, so it wouldn’t be a big hit for them.”
QNB, the country’s largest, and Doha Bank, the third-biggest, posted net income increases of 44% and 29% for the fourth quarter of 2010, according to data compiled by Bloomberg.
While “a standalone concept requires more cost and capital,” it won’t be a problem in a “country flush with capital,” said Bakar, who is also managing director of Amanie Islamic Finance Consultancy and Education in Dubai.
The $81bn Qatari economy will expand 20% this year, the International Monetary Fund said in December. The nation expects a budget surplus of more than QR9bn ($2.5bn) for the current fiscal year, the official Qatari News Agency reported on January 25, citing a Finance Ministry statement.
The development of liquefied natural gas exports has driven growth, which averaged 17% over the past five years, the IMF said.
The Qatar Investment Authority, the sovereign wealth fund, invested QR5.5bn to raise its stake in local banks to 20%, the Qatar News Agency said on January 17, citing Finance Minister HE Yousef Hussein Kamal.
Moody’s Investors Service estimates the country will spend $57bn over the next decade on infrastructure projects after it won the rights to host the World Cup 2022.
“You can’t have it both ways,” Elalaily said. “You have to either commit yourself to operating under Shariah principles or not. The notion of having a Shariah window isn’t really credible.”
