Qatar’s ‘Best Bank’ leads Islamic finance sector

What are the main opportunities in Islamic finance in Qatar?

Islamic finance has recorded many significant achievements over the last few years as it continued to strengthen its capabilities and grow by providing the products and services, as well as the capacity, to structure and finance major infrastructure projects in Qatar, in line with the country’s National Vision 2030.

The sector has recorded strong growth momentum over the last few years and this growth is predicted to continue into the foreseeable future. Recent figures confirm that Islamic assets remain the fastest-growing banking segment in Qatar. The share of Sharia-compliant assets in the local banking sector is now more than quarter of the total banking assets at 27%, while the share of deposits stood at 30% as of December 2015. Islamic banks are now targeting all segments by competing and acquiring not only Sharia-compliant sensitive customers, but also value-seeking customers who find the Islamic products pricing and offerings comparable to that of conventional banks.

How do these developments impact QIB activities and what are the main highlights of the first Basel III and IFSB-compliant additional Tier 1 perpetual sukuk in Qatar launched by QIB?

In Qatar, we have the fastest growing Islamic banks in the region, and the Qatar Central Bank has provided a sound legislation and platform for Sharia-compliant banks to be properly regulated and to grow and succeed. At the same time, the witnessed growth of total banking assets in the local banking sector is naturally putting some pressure on the liquidity conditions in the market, leading to increased cost of funding for all banks. In order to support QIB’s business growth and optimize the management of our cost of funds, as well as the bank’s liquidity and capital position, we have been tapping the capital markets with our sukuks being received with strong investor interest across the globe, resulting in significant oversubscription of all our issuances in recent years.

Last year, we also issued the first Basel III & IFSB-compliant additional Tier 1 perpetual sukuk in the State of Qatar. The perpetual sukuk was issued under the “Mudaraba” structure with agreed expected profit for the first six years. While it can be called back by the bank at the end of six years, since the sukuk does not have a maturity date it has been classified as equity. This issuance has established the structural framework adapted by other Islamic banks in Qatar for raising Tier 1 sukuks.

In which initiatives is this bank currently engaged? In what consists the MoU signed with Manateq to finance investors in the logistics area?

QIB was established back in 1982 as the first Islamic bank in Qatar. Driven by our values, we aim to build strong, long-lasting partnerships and mutually beneficial relationships with all our stakeholders. As part of the community, we strive to contribute to the country’s development through various ventures. We have the privilege of claiming that we are continuously adding economic value and trying to improve society as a whole, as well as the lives of each individual living in Qatar.

Manateq is a leading developer and operator of specialized economic zones, logistic parks, and warehousing parks in Qatar. The memorandum of understanding between us and Manateq provisions to finance investors in the logistics areas in the south of the country, with terms of financing up to 10 years. Through this agreement, QIB will be able to finance investors in these projects in order to bid, buy and build their business.

What role is QIB playing in fostering the participation of SMEs through programs such as Al Dhameen or Aamaly? How important is this market for the bank’s operations?

QIB has a dedicated proposition for small and medium-sized enterprises (SMEs) called Aamaly, which means “My Business” in Arabic. Aamaly is a comprehensive suite of financial services tailored to the needs of small and medium-sized enterprises, including dedicated relationship managers, dedicated banking centers and call center, 24-hour services through internet banking, payroll services, cash and cheque collection, overnight vaulting, and a variety of financing and trade finance products. We recently collaborated with several companies to develop tailored fleet and heavy equipment financing solutions.

We have also signed a new agreement with Qatar Development Bank (QDB) aimed at facilitating and speeding up approvals for small and medium-sized enterprises that lack sufficient securities or collaterals while having a positive outlook for business and thus have been validated by QDB’s Al Dhameen Program.

How is QIB working to accomplish the goals stated in the National Vision 2030 for human and social development, beyond economic growth?

QIB’s strategy is to target all banking sectors covering people’s financial needs in a comprehensive way. Both our corporate and personal portfolios have been posting healthy growth, while our local and international subsidiaries and associates contributed positively to QIB Group’s results. Within this context, the bank’s strategy is closely tied to the financing of national infrastructure projects, the financial support of private companies, major industrial SMEs, and the trade sector as part of Qatar’s National Vision 2030.

At the same time, we cannot ignore the pressing issues that affect the societies in which we operate. Our performance as a business depends on healthy economic activity. That’s why we are committed to helping address the challenges faced by the communities where we live and operate. We have been constantly involved in social and humanitarian initiatives that go hand in hand with our beliefs and understanding of our social responsibility. QIB supports and undertakes a variety of human and social development programs and activities. We are sponsoring core activities undertaken by the government in critical fields such as education, health, sports, and the preservation of the environment. We have established our own programs related to people in need, contributing and supporting to charitable activities in Qatar, and playing an active role in the society through our Zakat Committee.

Which have been the main drivers of growth in recent years?

For the past several years, the State of Qatar has been working on diversifying the economy and on becoming less dependent on the oil and gas sector. Indeed, the latest figures provided by the Ministry of Development, Planning & Statistics, with the non-hydrocarbon sector accounting for more than 62% of real GDP, confirm Qatar’s ongoing process of economic diversification away from its traditional role as a hydrocarbon exporter. In recent years growth has been mainly driven by the large-scale projects set by the government as part of the Qatar National Vision 2030, especially those related to the country’s infrastructure, the hospitality sector, and sports needed to meet Qatar’s hosting requirements for the 2022 FIFA World Cup. In 2015, the construction sector was the fastest growing sector with a growth rate of 13.6%, followed by the service sector, which grew by 11.9%. Other areas demonstrating high growth include hospitability and consumption.

QIB controls now over 43.5% of the Islamic banking market share in Qatar and 11.5% of the overall market as per the latest figures published by the Qatar Central Bank. It is important for us that we have been increasing business volumes across all business segments and at the same time managed to improve our efficiency, as evidenced by the reduction of our cost-to-income ratio to 31% at QIB Group level.

While we expect growth rates to moderate in the near future, there is no doubt that the Qatari economy will keep on expanding and diversifying in line with the Qatar National Vision 2030 and our bank is in a strong position to support and benefit from the expected growth.

What are the main advantages of Islamic banking services and products when compared to conventional banks?

Sharia-compliant banking, as part of our values, requires complete transparency and commitment. Customers come to us with trust in the values that we represent, and we have to ensure that those values are maintained and strengthened in all our dealings. This is valued by all our customers and key to our success and future viability. A notable recent development is that Islamic banks are now targeting all segments by competing and acquiring not only Sharia-compliant sensitive customers, but also value-seeking customers who, as I mentioned earlier, find the Islamic products pricing and offerings comparable to that of conventional banks.

What were the main drivers of QIB’s transformation?

Competition has increased significantly in recent years, and to satisfy the needs of our customers and to attract customers from all segments of the banking sector, as well as provide satisfactory returns to our shareholders, the bank’s management team is building a long-lasting competitive advantage by introducing new products and services, boosting service performance, developing efficiencies and upgrading QIB’s risk management framework.

Moreover, QIB recently migrated to a new technology platform that will allow us to provide faster and more convenient services to our clients and increase efficiency across all bank operations.

Last but not least, we are continuously developing distinctive capabilities in people and performance management. All of these developments add value to our brand and most importantly strengthen the relationship with our customers, our employees and our shareholders.

What are your future plans for international expansion at QIB?

In line with our long-term strategic plan, QIB Group’s focus is currently to build and cement a local leadership position by expanding and diversifying the products and services we offer to our customers in wholesale banking and treasury, as well as personal banking and wealth management.

On the international front, we have presence in the UK, through our wholly owned subsidiary QIB-UK, and opened a branch in Sudan. We also have a presence in Lebanon through Arab Finance House, and Malaysia through Asia Finance Bank. We have activity in Saudi Arabia and Turkey through QInvest, QIB Group’s investment banking arm.

Concerning QIB-UK, during the last few years we have developed a new strategy and completely restructured the business and operating model to focus on serving our high-net-worth clients by addressing their specific financial needs and delivering business growth within a rigorous risk and control framework. To support the new customer proposition, QIB-UK bought a five-storey office building at the heart of London’s affluent Mayfair district. The purchase of the new premises at 43 Grosvenor Street reflects the bank’s commitment to its UK business, dedicated to serving our high-net-worth clients from a centrally located headquarters.

In the foreseeable future, we are interested in solidifying the position of our international entities and expanding cautiously only if the right opportunity arises. To minimize the associated risks of international expansion, banks in general should be applying very strict decision criteria and follow a detailed due diligence process. Any expansion should first of all make business sense; we should be able to add economic value. This is easier when business and trade flows are already established between Qatar and the potential target market. Of course, the economic growth drivers of the target market, the stability of its political system as well as the soundness of the banking sector and the country’s legal and regulatory structures are factors with significant impact on any expansion decision, in addition to the price we pay for such an opportunity and its ability to create value for our shareholders.