Ranking the world’s fourth largest economy, recent figures show the MENA region generated a combined GDP of approximately 3.6 trillion USD. While the global financial system may remain in flux, the uncertain landscape poses significant opportunity for financial institutions.
Is the financial crisis now a distant memory for the region, and what role will the Middle East play in shaping future investment and global economic trends in the mid-term?
The financial crisis obviously hit everybody hard in Europe and the US and there was some impact in the GCC, but I think we have all learned from the mistakes of the past with much needed regulatory reform now in train. The key changes we have seen here are that investors have become more risk averse: post-recession, investors have become much more sophisticated and want to understand in much greater detail as to how their capital is being employed.
As a consequence, we have changed the business model for our investment banking activities and have introduced liquid, tangible investment opportunities that are less speculative in nature. For example, we have local equity portfolios that we trade for our clients, institutional and retail; we also provide local and international real estate funds that are income generating from day one, that are also liquid in nature. So there has definitely been a change and lessons that we have learned.
How is this appetite for investing in the real economy an opportunity for the Islamic banking sector?
The government is promoting major infrastructural development as we look to diversify away from hydrocarbon income; this strategy was put in place years ago and we are now starting to see the benefits. The government has announced infrastructure projects valued at more than USD 150bn, a significant opportunity for private sector involvement. As a bank we cater to those private sector requirements, servicing corporate banking needs for them to fulfil their contractual obligations to the government. So we have seen a sharp increase in corporate and small and medium business (SME) activity in Qatar. We were one of the first, if not the first, banks here to create an SME unit that caters to all their banking needs.
Doha has undoubtedly become the sports capital of the Middle East, propelling itself forward with an unrivalled amount of dedication to host dozens of major sporting events, including the 2022 FIFA World Cup. Qatari banks are benefitting from the knock-on effect of the state's heavy investment in infrastructure in preparation. To what extent is this encouraging for the sector, yet challenging to finance? Will it require international bank involvement or a Mandated Lead Arranger?
First of all, it represents very significant opportunity. Few (if any) markets worldwide have ever seen this level of ambition over such a short timeframe.
Secondly, many of the international banks who have traditionally led the project finance markets in this part of the world have scaled back in the region as they look to restore their domestic balance-sheets.
These two factors have created an opportunity for the local banks and one that we have been keen to develop. We have invested heavily in our own capability by bringing in first class talent and through improving our product offering, both the provision of finance and its facilitation through structuring, syndication and capital market opportunities.
As your question suggests, the magnitude of these projects means that no local bank can digest them single-handed: with that in mind, we have partnered with other local banks and have also welcomed international banks to participate in transactions under our leadership, and we have been quite successful at that. It’s fair to say that the Qatari banks are leading the financing initiative required.
As Islamic banking assets near $2trn, the five year CAGR for Islamic banking aggregates in Qatar stands at 31%, and at $54bn now accounts for 1/4th of the Qatari banking market. With regional players like Dubai and Istanbul, what is Qatar’s potential to lead the QISMUT and become a bridge between London and Kuala Lumpur to develop the sector further?
The Qatar Central Bank’s 2011 instruction to conventional banks to close their Islamic windows has certainly facilitated growth in Qatar but that growth would not have been possible without the Islamic financial institutions becoming more sophisticated in their approach to the services that they provide. If you look outside Qatar the leading Sharia’-compliant institutions are actually branches and subsidiaries of conventional banks. In Qatar it is the other way round and this has allowed Barwa Bank and our peers to establish our own identity in the market. Barwa Bank is certainly playing a role in the international promotion of Islamic finance. Good examples would be our Joint Lead Manager role for the debut UK sovereign Sukuk and our recent selection as lead manager for the World Bank Sukuk, or IFFI (International Finance Facility for Immunisation), both of which reflect well on Barwa Bank ambition to be a regional and global player in Sharia’ compliant financing, as well as for the country to contribute to being a key player in the Islamic finance market.
Would you share with the readers the genesis and development of Barwa Bank and its diversified product offerings? What makes this institution unique?
Barwa Bank was conceived in 2008 and began operations in 2010 as a new and distinctive Islamic bank based in Qatar, modern and fresh in its outlook though absolutely committed to Sharia’-compliant activity. In any service industry, it is people that deliver differentiation. I believe we have different skill sets (when compared to our Islamic finance peers not only in Qatar but also in the region). We believe that we can compete in terms of sophistication and customer expectation with our conventional competitors. Most importantly, our clients are the focus of everything we do; we strive for costumer excellence. We want our clients to acknowledge us as the number one (“most recommended”) bank in Qatar in terms of service and quality, a one stop shop that can deliver on all their banking needs. Unlike many of our peers, we also benefit from our own in-house investment bank subsidiary. Through this unique offering we are able to manufacture investment propositions at The First Investor and distribute them through the bank’s network. We want clients to look to us not only for their banking requirements but for their investment needs.
In June 2014 The UK Treasury issued a £200 million Sukuk, and Barwa Bank was appointed as one of five Joint Lead Managers for the UK Government's debut sovereign Sukuk, a landmark transaction that saw the first Sharia’ compliant issuance by a non-Muslim nation. How was this incorporated into your strategy and how do you forecast the Sukuk market continuing to grow?
It was a major achievement for a bank of our size and relative youth though we have acquired a reputation for punching above our weight. The UK government ran a very structured competitive process and it was very satisfying when we were selected, on merit, from a lengthy list of international and regional options competitors. As important was the fact that we delivered; the total order book ran to close to GBP 2 billion and nearly GBP 1 billion was generated through Barwa Bank. . We anticipate more governments and corporatations to follow the UK’s initiative; we are in discussion with a number of governments looking at the international Sukuk market, which we feel is an under-developed source of capital.
H.E. the Governor of QCB has told us the sector faces “unprecedented challenges for the supervision entities as financial sectors are interrelated worldwide, creating genuine complexity especially in times of crisis. Thus, QCB has taken a number of measures including enhancing the licensing criteria for Islamic financial institutions”. How has the implementation of BASEL III and the Qatar Central Bank’s combination of it with directives specifically geared for Islamic Finance strengthened the sector? Have these reforms amended Barwa Bank’s development strategy?
I can say the Central Bank has been incredibly proactive in pushing for the implementation of both the BASEL II & III accords ahead of the agreed deadlines. Our regulator’s main task is to ensure stability within the sector and to ensure that risks are managed effectively. Regulatory effectiveness is reflected in the health of the financial sector in Qatar: we have seen a reduction in non-performing loans over the last couple of years despite very rapid growth, never an easy balancing act.
From Senior Financial Analyst at QP, to CEO of First Investor, to Barwa Bank, you’ve been instrumental in the finance sector of Qatar. What is it that makes you passionate about working in finance and especially for this institution?
The reason I left a global international bank to work for a local institution was to apply what I had learned. My experience with Morgan Stanley was very rewarding in the sense that I got a chance to understand world class know-how, products, etc., with exposure to Global Markets, Commodities, Asset Management, Private Banking etc. My role here in Qatar was managing in-country relationships and sharing with them the pipeline of opportunities generated through the global franchise. When the opportunity came for me to move to The First Investor, our subsidy investment bank, back in 2013, the opportunity was to move from being a relationship or Country Manager into becoming a CEO and managing a team of 50 people. The First Investor is much more entrepreneurial, because you are at liberty to set your own guidelines as important, it is a local investment bank offering me a chance to do things that could truly benefit the country; a lot of the products that we have done, be it equity funds in the local or regional markets, or real estate funds locally or internationally, it was done on the basis of how do we add value to our customer base. So a lot of our Retail or Private Banking or Prestige customer base, they may not have the time or opportunity to invest in certain asset classes. Therefore, we create simple, tangible products and funds which they can participate in and benefit from the returns be it local and regional equity funds, real estate or private equity exposure.
When I moved from The First Investor to the Barwa Bank last year, it was a transformation from investment banking into commercial banking. And I guess the motivation or drive here is: what steps do we need to take to bring Barwa Bank to become the number one financial institution in the country? Simply put, it is by being customer focused; everything we do here should be for the benefit of the customer, we should be looking at reducing our turnaround times, improving our products, improving our technology. So that is really the heart of what we do; a customer focused approach.