The largest bank in the Middle East and Africa, Qatar National Bank (QNB) has a plan: keep expanding internationally and elevate its status to that of a global bank, with extensive operations in several continents. Several other of the country’s banks are also eyeing up opportunities abroad
Despite worries that the global banking sector is facing a turbulent future potentially repeating the 2008 crisis when finance sector shares collapsed and major players like Lehmann Brothers went to the wall, the international ambitions of Qatar National Bank (QNB) may not be unrealistic.
It is dominant in its domestic market, is already operating in some key foreign markets, has a healthy balance sheet, enjoys good ratings, and can rely on the financial heft of Qatar’s government, which has a 50% stake in it.
“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,” says QNB’s Group Chief Executive Officer, Ali Ahmed Al-Kuwari.
“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.”
In June this year, QNB completed the acquisition of a 99.81% stake in the fifth-largest private Turkish bank, Finansbank, aiming, as it said at the time, to use the purchase to “benefit from the rapid development of trade and the strengthening of economic ties between Turkey and the Middle East in general, as well as between Qatar and Turkey in particular.”
The Turkish bank is a lot to digest, given that it has 620 branches, more than 12,000 employees, and as at the end of March its total assets are worth $32 billion.
“Our strategy is to focus on high-growth markets where we see a competitive advantage. Turkey, with its significant market size, population, growth track record, strong economic and banking sector, and strategic location as a gateway between Europe, Asia and Africa, represents such a market,” says Mr. Al-Kuwari.
QNB, which opened its first Gulf Cooperation Council (GCC) country branch in Oman in 2007, has also been venturing into big Asian countries. In 2013, it opened a representative office in China and established a fully owned subsidiary in India, and last year set up a representative office in Vietnam.
It also has a substantial presence in Egypt, Jordan, the UAE, Iraq, Tunisia and Libya, as well as stakes in banks further afield including in Indonesia. In 2014, it increased its holding in Togo-based pan-African lender Ecobank Transnational to 23.5%, becoming its dominant shareholder. QNB now has branches in 27 countries.
The QNB boss has indicated that more acquisitions are only a matter of time.
“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 characterized by a favorable macroeconomic outlook, a growing and healthy banking sector, as well as the availability of suitable targets,” he says.
The bank’s performance, goals and strategy has been recognized by leading finance publication Euromoney, which in 2015 named QNB as the best Middle East bank for the second consecutive year.
“Rather than just building offices and growing organically on the back of an internationally active Qatari client base, the pattern has been to buy into an existing enterprise and take advantage of the deep roots that come with it,” commented Euromoney.
QNB’s moves abroad come at a difficult time for international banking. Already buffeted by economic slowing in powerhouses like China and the slump in most global commodity prices, banks now have to cope with a range of new uncertainties which could undermine their hopes for the future.
These include the UK’s vote to leave the European Union and other global events with the potential to rock markets, like economic and political tensions within the EU and upcoming elections in the U.S., France and Germany.
The vote for Brexit prompted rating agencies to cut the standings of British-based banks, which include some of the world’s largest. While banks in the GCC are insulated for now from the fallout from Brexit, a widening of that crisis could have an impact on QNB and other banks in the region.
Even before Brexit, Moody’s, in its 2016 banking sector outlook, warned that while banks in many countries had improved their capitalization and strengthened their balance sheets, risks such as weakening asset quality in emerging markets could derail progress. Euromoney too has warned that risk has reached levels “that do not preclude another global shock if China hits the skids.”
Mr. Al-Kuwari, however, believes his and other Qatari banks are well placed to weather the uncertainties ahead.
“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. 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,” he argues.
That is not to say that the Brexit does not pose a threat to banks in Qatar or the Gulf region, as their growing international presence leaves them more exposed to global headwinds.
“Our baseline view is that the risks are likely to be contained in the UK and, to some extent, the Euro area. But contagion to the rest of the world through trade and, especially, financial market linkages could pose a real risk in the future,” QNB’s research department said in a recent report.
QNB’s financial health provides a strong base for its expansion abroad. “The strong and robust nature of QNB Group’s performance in 2015 was reflected in the delivery of record financial results. Net profit rose to QAR 11.3 billion ($632 million), up by 8% compared to 2014,” notes Qatar’s Minister of Finance and Chairman of QNB Group, Ali Shareef Al-Emadi.
QNB’s total assets increased by 11% to reach QAR 539 billion ($148 billion), the highest it has ever achieved, with this underpinned by a 15% growth in loans and advances to QAR388 billion ($107 billion).
“QNB Group 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,” Mr. Al-Kuwari notes.
A survey, carried out in 2015 by Brand Finance and published by The Banker magazine, listed QNB as the most valuable bank brand in the Middle East and North Africa in terms of assets, ahead of National Commercial Bank of Saudi Arabia and the National Bank of Abu Dhabi. (However QNB may soon lose its number one ranking following the recent merger of National Bank of Abu Dhabi and First Gulf Bank in July).
Qatar’s leading Islamic bank is another with ambitious overseas targets, aiming for a dominant position in the rapidly growing market for Sharia-compliant financing.
Qatar Islamic Bank has a 43% share of the country’s Islamic financing sector and already is one of the largest Islamic banks in the MENA region. In April, it reported higher-than-forecast jump of 23% in first-quarter net profits.
“We have a presence in UK, through our wholly owned subsidiary QIB-UK and opened a branch in Sudan. We have also presence in Lebanon through Arab Finance House, Malaysia through Asia Finance Bank. We have activity in Saudi Arabia and Turkey through QInvest, QIB Group’s investment banking arm,” notes Bassel Gamal, Group CEO of QIB.
“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.”
Qatar’s second-ranked Islamic bank, Masraf Al Rayan, is also looking outwards, as well as being a driver of plans to create the world’s largest Sharia-compliant Exchange Traded Fund, due to be launched on the Qatar Stock Exchange later this year, and is making efforts to bolster Qatar’s ranking in the world of Islamic financing.
“We are always looking for opportunities to grow organically and through acquisitions. Since the acquisition of the Al Rayan Bank Plc in the UK we have been exploring other opportunities in the GCC, North Africa and Southeast Asia. We are also seriously considering expansion into Europe through Al Rayan Bank Plc,” says Adel Mustafawi, Group CEO, noting that the UK franchise has assets in excess of $1.45 billion.
Foreign expansion is also a key driver for the second-largest conventional bank by assets, the Commercial Bank of Qatar, founded in 1974 and the country’s first private bank. “Commercial Bank is always trying to find the right opportunities, whether locally or internationally,” says CEO Joseph Abraham.
“Extending our sights and ambitions beyond Qatar, we first looked within the GCC as these countries are similar in terms of language, customs and way of living.”
He adds, “Our associate banks, National Bank of Oman in Oman and United Arab Bank in the United Arab Emirates, have diversified our income streams, and despite the difficulties that Dubai is going through at the moment we believe it is a profitable market and that there are plenty of opportunities to grow there even more.”
His bank took a majority stake in Turkish bank ABank in 2013, and while “the current political situation there and the depreciation of their currency is presenting some short-term challenges…in the long run Turkey has the potential to become one of our leading subsidiaries.”
Mr. Abraham says, “Our diversification efforts have proved successful to date and we are always willing to consider new opportunities in different markets as part of our growth plan.”
In January, Commercial Bank signed a memorandum of understanding with Bancomext, a Mexican national development bank. And in March its shareholders approved the launch of a global medium-term notes program to allow for the issuance of bonds to U.S. investors worth up to $2 billion.
Sheikh Abdullah bin Saud Al-Thani, Governor of the Central Bank, says, “The expansion of operations of Qatar-based lenders internationally is in itself an indication of the increasing strength and confidence of these banks to compete with others in the international arena.”