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Middle EastJune 1 2004

Economy rises

Abdulla bin Khalid Al-Attiya, governor of the Qatar Central Bank, talks about Qatar’s financial future.Q The Qatar economy is seen to be booming; how do you see its prospects and the years ahead? A The economy has been growing strongly, reaching 8.8% growth in 2003 and a GDP total of Qr70.8bn ($19.5bn). Other factors have been positive, too, with the balance of payments surplus rising 34.2% to Qr10.9bn in 2003 and inflation, although rising, kept at 2.3% last year. Clearly the economy is influenced by developments in the oil and gas sectors, and the growth in gas revenues has and will be significant, with gas revenues expected to be higher than oil revenues by 2010.
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The economy is also expanding in other sectors, the stock market is escalating sharply along with real estate prices, and events such as the Asian Games in Doha in 2006 are creating new opportunities. From the regulatory perspective, we are also placing limitations on lending in some areas to dampen speculative activities; we are defining the boundaries.

Q Is Qatar’s growth a bubble?

AWe are trying to learn from experience and put in the necessary regulations to absorb the impact of new developments in the education and health sectors and elsewhere. The government is well aware of the issues and has learned from the past, it has accumulated reserves.

I do not see bad experiences in the future.

Q How profitable are the banks and what is their outlook?

A The net profits at Qatar’s commercial banks rose 33.9% in 2003 to reach an aggregate total of QR1.7bn and this profit growth has continued into 2004, with aggregate net profits for the first quarter of this year reaching QR520.4m. Also, loan portfolios are clean and loan demand is going up as the economy expands and, despite declining interest rates, margins on lending remain high. Banks are also more aware of better credit decisions and practices and since the problems with Mannai Corporation in recent years, which the banks tackled well, the banks are now in a better position.

Q How do you see the structure of the banking sector changing? Will there be new banking entrants?

A Ahli United Bank of Bahrain has bought a stake in Al Ahli Bank of Qatar and National Bank of Kuwait is coming. These are positive moves, which will help to create more efficiency in the system. We are also thinking of allowing some Gulf Cooperation Council [GCC] banks to have a presence. We would like more economic integration between the six GCC states. Also, alliances, such as the recent agreement between Doha Bank and Bahrain’s United Gulf Bank, are good for acquiring expertise and developing synergies. Alliances with international firms are encouraged.

As for foreign banks, Iran’s Bank Saderat is here. But there is not as much foreign interest as there is from GCC banks, which view the prospects for Qatar as good.

Q As the economy expands, how is the central bank’s role going to change?

A The central bank is to become the single regulator within the financial system along the lines of the UK’s Financial Services Authority. Besides our monetary policy role, we are extending our supervisory role to insurance, brokerage and to the stock exchange itself.

We have amended the law, thus enabling the single regulator role. All the legal requirements for this should be completed by the summer, allowing the law to become operational by the autumn.

On other issues, the central bank has introduced a central repository system for bank information and a new cheque image-based clearing system, which now provides 24-hour clearing.

Q What are the prospects for a single currency in the GCC states?

A The process of moving to a single currency in the GCC is proceeding at a good pace and we will benefit from the European experience. We all agree on the US dollar as the reference currency and we are studying a report that we asked the European Central Bank to prepare for us.

All the GCC states have agreed to abolish trade tariffs within the GCC and adopt a uniform 5% external tariff. The target date for the single currency is 2010; monetary policy is not the problem – the real problem is dealing with the physical issues, deposits for example, and getting co-operation and agreement.

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