Group CEO of Qatar’s largest bank, Qatar National Bank (QNB), Ali Ahmed Al-Kuwari explains the solidity of the country’s banking sector and how financial institutions are helping it meet its development goals for 2030. He also discusses QNB’s dedication to incubating new businesses, its human capital development efforts, and its plans for further expansion overseas.
What is your assessment of the coordination among public institutions, foundations and the private sector to achieve Qatar’s National Vision 2030 goals?
The Qatar National Vision 2030 (QNV 2030) aims to transform the economy from a hydrocarbon based to a knowledge-based economy. The strategic initiatives around this vision are focused on human, social, economic and environmental development.
The achievement of the QNV 2030 goals requires strong coordination among the major institutions in Qatar, both public and private.
To date, the government has been the main driver for the implementation of the QNV 2030, but the contribution of the private sector to economic growth and sustainable development is expected to grow.
Among the steps taken by the government to increase the participation of the private sector is the preparation of a law covering the use of public-private partnerships (PPPs). Beside opportunities in public infrastructure developments (roads, sewage, bridges, etc.), the new law would present opportunities for the private sector to participate in projects in the sport, health and education sectors.
The government is also focused on acting as an incubator for the private sector. QNB, as the largest bank in Qatar, is fully dedicated to contributing to this initiative. Within this context, our mission is to nurture the development of small and medium-sized enterprises (SMEs) by acting as a one-stop shop for this segment.
How do you view Qatar’s economic diversification strategy and the role of financial institutions?
Qatar is on its way to transforming the economy from a hydrocarbon-reliant to a non-hydrocarbon-based economy. This transformation is driven by the government through a large investment spending program to diversify the economy towards sectors such as construction, manufacturing and services.
The size of the investment projects requires a large inflow of expatriate workers, which is spurring domestic demand for services such as education, health, finance and housing, and also helps drive economic growth.
Financial institutions play a vital role as intermediaries to support this diversification. They provide the necessary funding and liquidity for project execution. They take a leading role in the origination of funding and assist in structuring customized solutions for project participants, be it from the public or private sector.
As mentioned before, financial institutions play a critical role to nurture the private sector, which is still in a nascent state in Qatar, in line with the QNV 2030. Apart from assisting SMEs in setting up their business, their mandate is to provide comprehensive and exhaustive financial solutions for this segment with dedicated and sector-specific offerings.
On the retail banking front, financial institutions offer individuals a diverse range of innovative products and services through an array of channels (physical and remote) for all segments (affluent, mass affluent and mass retail). Banks have started to provide targeted and tailor-made solutions for expatriate workers across all segments. Services include remittances, tailored investment solutions and bespoke wealth management services. QNB is the largest player in the Qatari banking market and provides all of the above products across all segments. As a fully fledged universal bank, QNB also offers a vast range of high return-on-equity (RoE) businesses, such as transaction banking, asset management, brokerage, custody and investment banking services.
What are the greatest potential growth sectors in Qatar, and what will be the impact of infrastructure developments on the economy?
Economic growth in recent years has been driven by the non-hydrocarbon sector, as hydrocarbon production has been broadly flat. Growth has been based on investing hydrocarbon surpluses into infrastructure projects, driving growth both directly, but also indirectly, as it has led to fast population growth.
The fastest growing sectors have been: (a) construction, benefiting from the government’s large infrastructure spending; (b) services, benefiting from population growth; and (c) manufacturing, benefiting from Qatar’s movement up the hydrocarbon value chain.
In the short term, investment spending boosts demand in the economy and generates near-double-digit growth in the non-hydrocarbon sector. In the long term, the establishment of physical infrastructure and the presence of a critical mass of highly skilled labor should create a conducive environment for a knowledge-based economy, with growth driven by productivity improvement.
We expect the diversification drive to continue going forward, ahead of the FIFA World Cup 2022 and in line with the QNV 2030. The government estimates the value of its projects currently underway at QAR 261 billion ($72 billion), excluding projects in the energy sector or those implemented by the private sector.
What is the level of competition in the banking sector?
Despite the presence of a relatively large number of banks (18 banks for a population of 2.5 million people), the Qatari banking sector is highly concentrated. The top five banks account for nearly three-quarters of the system’s assets.
The sector is segmented into 14 conventional and four Islamic banks, following the QCB’s directive to ban conventional banks from running Islamic windows in 2011. The four Islamic banks represent about a quarter of the banking assets, and their assets grew by 19.1% in 2014.
Penetration of foreign banks remains limited, with their assets accounting for only 4.0% of the system’s assets as of end-2014.
Despite the competition in the market, Qatari banks still enjoy healthy profits, demonstrated by robust RoE of 17.8% on average in the last five years (2010 to 2014). Solid profitability is supported by high asset quality (five-year average NPL of 1.8%) despite high capital buffers, with a five-year average capital adequacy ratio (CAR) of 17.6%.
QNB Group is a major player in the Qatari banking system and the region as a whole. It accounts for nearly half of the Qatari banking system’s assets and is today the largest bank in the Middle East and Africa across all financial metrics.
Could you tell us about QNB’s partnership with Teach for Qatar?
The central theme of the QNV 2030 is the creation of a knowledge-based economy, where growth is driven by a productive and innovative workforce. Education is a crucial element towards realizing this vision through the development skilled human capital.
As the country’s first Qatari-owned commercial bank, we have an obligation to give back to the community, and we are delighted to join Teach for Qatar in its efforts to improve the local education sector, in line with the QNV 2030.
QNB will endorse Teach For Qatar’s mission and vision through funding and networking opportunities. QNB will also support the Teach For Qatar secondment program by offering its employees the opportunity to join the Teach For Qatar Fellowship.
Does global expansion figure as part of the bank’s risk aversion strategy?
International expansion is one of the cornerstones of QNB Group’s strategy to achieve its vision of becoming a leading bank in the Middle East, Africa and Southeast Asia by 2020, and a global bank by 2030. In line with this vision, QNB will continue to expand its international network and footprint through strategic and opportunistic inorganic growth. Target markets are selected frontier and emerging markets that are characterized by a favorable macroeconomic outlook and a growing and healthy banking sector, as well as the availability of suitable targets. When looking at growth opportunities globally, QNB Group has identified a set of markets in sub-Saharan Africa and Southeast Asia as the focus areas for further expansion.
Given the recent economic headwinds in the GCC region, how does this impact the banking sector in Qatar?
The banking sector in Qatar is very healthy. Return on equity was 16.2% in 2015, with a very low level of non-performing loans (1.6%). As of April 2014, banks have already fully complied with Basel III capital adequacy standards, with a capital adequacy ratio of 15.6% at end-2015. Strong supervision by the central bank and very prudent lending policies ensure that the strong health of the Qatari banking sector will continue in the future.
Historically, Qatari banks have had a conservative approach to lending. This engenders a strong risk governance mentality, generates a clear definition of risk appetite, and promotes prudent risk management at consolidated and local levels. Caps on consumer credit limit and tight lending standards have kept the risk of excessive private sector leverage contained with conservative loan-to-value ratios for specific products.
In addition, the establishment of the Qatar Credit Bureau was an important step towards further mitigating credit risk in the private sector by improving banks’ access to clients’ credit histories. As a result, credit risk remains low in the economy as mentioned before with high asset quality.