Several of the biggest players on the domestic market have been raising capital from shareholders to fund their regional expansion programmes. For dominant banks such as Qatar National Bank (QNB), which has a market share of about 45% of banking sector assets, it is a logical direction to look for the next stage of growth. But it is a strategy that presents new challenges. Breaking into new markets is not easy in a region that is thick with profitable financial institutions, while competition on the domestic market continues to intensify.
Big impression
About 15 months after its creation, the latest entrant into the banking sector is beginning to make an impact, deliberately targeting the weakness of old, established banks that have failed to update their systems sufficiently to cater for present-day demands of customer service. Al Khaliji bank, which was created by a group of shareholders from five Gulf Co-operation Council (GCC) countries, has established all of its systems and technology from scratch. Since its inception, it has raised $2bn in capital, launched its corporate business and is about to launch its retail business in Qatar, prior to rolling out services in the United Arab Emirates (UAE), Oman, Kuwait and Bahrain. CEO David Procter insists that the bank is not rushing and that it is focused on maintaining the quality of its services.
Al Khaliji is a “very different story from the rest of the market”, he tells The Banker. Although it is based in Qatar, Al Khaliji is determined not to be seen as a Qatari bank. “We could have set up in any of the five GCC countries that our shareholders come from,” says Mr Proctor. “We have done a huge amount of research. There is a similar theme that comes through when you talk to people about bankers. People don’t trust them. They view them like second-hand car dealers and estate agents.”
Capturing market share
Al Khaliji believes that it can secure market share by providing better customer service and a more sophisticated approach that goes beyond “simplistic product-push marketing”. “We are training our staff to have conversations with people,” he says.
Mr Procter says he is not worried about the number of new banks that have launched in the region in the past few years nor about the number of banks in Qatar that are raising capital to fund expansion. “In the current climate, that is what I would expect them to do. The capital element is the easy part. The real test is what is the quality of your offer.” Mr Procter observes that expanding through acquisition is difficult in the current highly profitable climate, although this has not prevented Al Khaliji from entering into negotiations to buy a bank in the UAE. He admits it was a “bold decision” for a bank that is still being built, to attempt to acquire another one.
Mr Procter says that the idea of Al Khaliji was not to create just another “me-too” bank in the region; but the supply of fresh ideas is limited. Commercialbank of Qatar has also extended into neighbouring countries. It completed its acquisition of a 38.1% stake in Sharjah-based United Arab Bank on April 7. A strategic alliance between the two banks was announced in February.
In July 2005, Commercialbank bought a 34.85% share in National Bank of Oman. The management has cemented the latest acquisition by shifting to a regional group structure that it hopes will support what has become a regional alliance. It has also embarked on a capital-raising exercise to fund its strategy of regional expansion. Andrew Stevens, group CEO, told shareholders when launching the bank’s 2008 first quarter results that the bank aimed “to ensure that we have a capital base sufficient to cope with future growth, both organically and through acquisitions”.
On May 19, Commercialbank shareholders were due to meet to approve an increase in the bank’s paid up capital from Qr1.82bn ($500m) to Qr2.06bn. The bank told the Doha Stock Market on May 4 that Citibank, acting as depositary bank, would issue global depositary receipts that would be listed on the London Stock Exchange. At an earlier meeting in March, the shareholders approved a 30% increase in the bank’s paid up capital from QR1.4bn to QR1.8bn by issuing bonus shares to shareholders on the basis of three new shares for every 10 held. The shareholders also approved a separate rights issue of one share for every 10 held, but this issue has been deferred until the fourth quarter of this year.
Commercialbank is following an established trend. Regional expansion is a common strategy among leading Qatari banks as a means of curbing competitive pressure in their home markets. In 2006/07, QNB acquired 50% of Tunisian Qatari Bank, 30% of Jordan-based The Housing Bank for Trade and Finance for $640m and agreed to establish the Qatar National Bank – Syria jointly with Syrian private and public institutions with a 49% share. QNB also established representative offices and branches in Oman, Kuwait, Mauritania, Libya, Yemen and Singapore.
Doha Bank, which is the third largest bank in Qatar in terms of assets, has also been active in geographic expansion, establishing representative offices and branches in Turkey, Singapore, Japan and China.
Positive reaction
Looking at this geographic diversification, Standard & Poor’s notes in a recent bank industry analysis: “As long as these new risks are kept under control and the expansion proceeds conservatively, we view these operations positively because they help reduce banks’ concentration on the booming Qatari economy and its real estate sector. However, in most cases these operations will have little overall effect on the business and financial profiles of Qatari banks.”
While local champion QNB sees its future in regional and international expansion, and opening branches throughout the Middle East, it has not neglected its home base. In March, it reached “an advanced stage” in acquiring regulatory approval to establish its independent investment banking subsidiary, QNB Capital, at the Qatar Financial Centre. It has raised finance for this expansion through rights issues. On April 21, QNB closed subscriptions for the second stage of its capital increase, which was three times oversubscribed, proving that investor confidence in the bank and the sector is undimmed.
