Share the article
twitter-iconcopy-link-iconprint-icon
share-icon
Middle EastJune 4 2006

Competition hots up for local custom

Although there has been considerable international focus on Qatar’s project finance boom, local banks are concentrating on an unprecedented retail boom, write Paul Melly and Eleanor Gillespie.
Share the article
twitter-iconcopy-link-iconprint-icon
share-icon

Traditionally, Qatar National Bank (QNB) served the locals, Doha Bank was the preferred choice of Asian customers, while Commercial Bank of Qatar led the way in catering for the Western expatriate community. But Qatar is fast becoming a dynamic market in which such simple categorisations no longer apply.

The economy’s rapid gas-powered expansion, and the business opportunities this generates for banks, has stimulated intense competition. Some market observers felt that QNB, for long the state-owned model of reliability, had become stolid and unadventurous in its approach to retail business. This is no longer the case.

“The market has become a lot more competitive and QNB has recognised the need to respond to the change, especially in the retail area, enhancing its product range and adopting a more proactive approach to the promotion of its services,” says Douglas Beckett, general manager for retail banking.

“We have always been an organisation that was trusted and that Qatari consumers have found comfortable to deal with. We also have the country’s largest branch network and a good ATM infrastructure,” says Mr Beckett. “But we have now recognised that in today’s environment these traditional strengths need to be supported with a vigorous marketing strategy, a flexible approach to meeting customers’ needs and the development of fresh products to meet new needs.”

QNB faces lively competition from Commercial Bank and Doha Bank, among others.

“Our 30-year history is packed with examples of new ideas that we have introduced to the Qatari market,” says Commercial Bank deputy chief operating officer Azza Foutuh, citing a

front-rank role in the development of vehicle loans, internet banking, and corporate services via the internet. A new real-time online internet service has attracted 8000 customers in the six weeks since it was launched.

Moreover, says Mr Foutuh: “We are market leaders in credit card issuance and command 48% of total credit card receivables.”

Islamic services

Islamic services are also a key growth area. “In April 2005, Commercial Bank launched Al-Safa Islamic banking services, the first of its kind from a conventional bank. During that year, we opened four new separate branches specialising in Islamic banking,” says deputy chief executive Mohammed Mandani. More Islamic branches will follow in the next two years.

Al-Safa – now claiming a 5% market share – was the first Qatari Islamic bank to develop Islamic letters of credit and letters of guarantee. It has also pioneered the local use of tawarruq (a personal finance facility) and ijara (leasing).

On the back of booming profits in the past year, Qatari Islamic banks are expanding into the local and regional market.

International Islamic, run by a successful banking wing of the ruling Al-Thani family and known as Qatar International Islamic Bank until an extensive rebranding last year, recently obtained a licence to set up an Islamic bank in Syria, where it has long been keeping a watching brief, waiting for an opportunity. In 2004, International Islamic held talks with Syria’s Daaboul Group on setting up a jointly owned bank.

International Islamic lost its bid for Cairo Far East Bank in January to Lebanon’s Bank Audi but is determined to stay focused on north Africa, including its attempts to set up an Islamic bank in Morocco. Expansion into Pakistan is also on the cards with International Islamic announcing that it has received approval for two companies, one for life Takaful and one for general Takaful.

In March, Qatar Islamic Bank (QIB) signed an agreement with Bahrain’s Gulf Finance House (GFH) to launch Qatar’s “first dedicated Islamic investment bank”, to be launched with authorised capital of $1bn and paid up capital of $500m. GFH and QIB will each own 15% of the bank. GFH’s CEO Esam Janahi says: “Our view is that Qatar is poised for substantial economic growth for many years to come and the generation of capital in Qatar will help to drive economic growth in the region as a whole.

“It is a sound strategic move for GFH to establish a significant presence on the ground in Qatar’s banking sector.” QIB was heavily involved in setting up Lebanon’s first Islamic-oriented bank, Arab Finance House.

Among conventional banks, Doha Bank has innovated in developing consumer services such as bancassurance and electronic remittances, incentives with prizes for long-term depositors and even education programmes for what is an increasingly sophisticated customer base.

“There has been a distinct shift in the profile of expatriates… with more and more high-skilled people coming to Qatar,” deputy chief executive R Seetharaman points out.

Risk management

Mr Seetharaman says he believes that an economy evolving as fast as Qatar’s poses challenges for banks in managing credit risk. “Risk management is, accordingly, getting fine-tuned to address these developments. Our credit assessment gets much deeper and the nature of securities and collaterals also gets refined… We have counter guarantees issued by banks in the home countries of [client] organisations, as security.”

According to Doha Bank CEO Sheikh Abdelrahman Bin Mohammed Bin Jabor Al-Thani, the strengthening of risk management and recovery functions has yielded good results, with non-performing loans dropping by 8% from Qr885.3m ($243.1m) in 2004 to Qr809.85m in 2005, and total recoveries increasing by Qr42.4m between 2004 and 2005.

This change is reflected in an improvement in Doha Bank’s “D” financial strength rating by Moody’s Investors Service, from stable to positive. Moody’s said this rating action recognised Doha Bank’s improved financial fundamentals – a direct consequence of the ongoing improvements in the domestic operating environment.

Investment banking

Given the pace of project development, investment banking is a key area for Qatari institutions.

QNB, with close links to government, has been especially well placed, leading a number of initial public offerings (IPOs), including, recently, the Al-Rayyan IPO, playing a role in the RasGas 2005 bond issue and launching a bank-sponsored fund for equity investing in locally listed stocks.

“Our aim is to develop this area significantly, with new investment products to be launched over the next few months, including a sharia-compliant fund, a real estate fund and a regional equities fund,” says Vince Cook, general manager for corporate banking and capital markets at QNB.

Mr Seetharaman says Doha Bank also intends to participate selectively in investment and project deals, while last year Commercial Bank set up its own syndications and structured finance unit. “Our corporate finance and syndications team acted at senior levels in 30 large syndicated financings in Qatar and elsewhere, with aggregate financing commitments exceeding Qr4bn,” says Mr Foutuh. Commercial Bank was sole lead arranger of two large private sector financings and won the mandate for dividend management for Industries Qatar.

Qatari banks have regional ambitions. In 2005, Commercial Bank raised Qr2.24bn through a rights issue which, says chief finance and strategy officer Majed Abdel Rahim, is designed “mainly” to fuel regional growth. Last July, the group bought a 34.9% stake in National Bank of Oman and other Gulf expansion options are being pursued.

Mr Beckett says QNB has “publicly stated ambitions for regional expansion in the Gulf Cooperation Council (GCC) states, Egypt and North Africa, and the Mashreq. In some regions, this will be focused largely on corporate business, following Qatar’s trade flows. But we are also looking at retail banking opportunities in the GCC – where we believe we could become one of the top five regional banks.”

Doha Bank unveiled ambitious expansion plans in March, announcing it was preparing to open branches in India, Washington and London, and possibly setting up representative offices in Singapore, China, Turkey and Japan. As part of these plans, Doha Bank’s representative office in Dubai would be upgraded to a branch office.

Shareholders recently approved proposed amendments to the bank’s articles of association to expand its scope to cover Islamic banking and set up Islamic banking branches, including ones outside Qatar. Other amendments have authorised Doha Bank to issue banking bonds.

Standard practice

Qatar’s first bank was Standard Chartered, which has two local branches. Chief executive Kris Babicci says that all banks offer competitive pricing and therefore service is the real test. “Qatar is a market that is new to financial planning products,” he says.

For business customers, Standard Chartered vaunts its international coverage. “Our presence in the energy sector is strong and we have the right resource capabilities to structure solutions,” it says

“Our international network provides the ability for our customers to connect with key corporates in other markets, in addition to providing the right structures to drive capital efficiencies.”

Standard Chartered has limited its exposure to the property market, says Mr Babicci, but it works extensively with local banks: “The partnership is great as it provides local balance sheet combined with SCB’s structuring skills and international networks.”

Unsurprisingly during an energy-driven boom, bank profits remain strong. Doha Bank recorded a net profit for the first quarter of Qr212.86m, compared with Qr186.45m for the same period in 2005.

QNB posted net profits of Qr611.6m for the first quarter, a 56.1% increase on the Qr391.7m of 2005. CBQ announced a net profit of Qr227m for the first quarter, a 22% increase on 2005’s result. OIL AND GAS FUEL SPECTACULAR GROWTH, BUT INFLATION RISING Qatar has one of the world’s fastest growing economies – nominal gross domestic product (GDP) surged by 29% in 2005 and Qatar National Bank (QNB) forecasts a further rise of almost 20% this year. Standard Chartered projects growth in real terms will reach 10.5%. The hydrocarbons sector is the engine room of this impressive performance, says Mohammed Moabi, QNB’s executive manager for economics and research: “The oil and gas sector accounted for 62% of total GDP and grew by 23.5%.” Thanks to a Qr204bn ($56bn) five-year investment plan at national oil company Qatar Petroleum (QP), hydrocarbons’ share of GDP should reach 67% this year. Mr Moabi says QP has been “very effective” in ploughing profits back into its operations and repaying loans ahead of maturity. The government is reinvesting oil and gas revenue in infrastructure and public services. “The recent 2006/07 state budget forecasts an increase of 44.4% in total expenditures, to reach Qr54.6bn, with allocations for major public projects increasing by 70.5% to reach Qr20bn,” says Mr Moabi. “Higher energy revenues have also had an immense impact on domestic liquidity. In 2005, domestic liquidity increased by 43.2% to reach a record level of Qr64.3bn.” Personal affluence is rising fast. Standard Chartered’s country chief executive, Kris Babicci, points out that even conservative estimates put average per capita income at $44,220, the highest in the world. But inflation climbed from 2.3% in 2003 to 8.8% last year. Last September, Qatar’s Emir Sheikh Hamad bin Khalifa al-Thani expressed concern about rising inflation, calling it the only negative indicator in an otherwise booming economy. This reportedly prompted Qatar Central Bank (QCB) to take steps to curb the cost of living in Doha. Housing costs rose by 26.5% in 2005, notes Mr Moabi, citing “a supply gap in office and residential accommodation, a shortage in building materials and the increasing number of middlemen in the supply chain”. He adds: “The QCB has been restricted in its policy movements, mainly due to the pegging of the Qatari riyal to the US dollar. It moves in close tandem with the US Federal Reserve.” The Doha authorities have responded by facilitating new residential development. They were among the first in the region to pass legislation allowing expatriates and foreign investors to own property. “This legislation has also caused the domestic banking sector to introduce various mortgage facilities to locals and expatriates,” Mr Moabi notes. He also highlights the $700m investment in an Asian Games City, tourism and the development of an Education City that will host branches of internationally-renowned institutions. The overall education budget for 2006/07 is Qr5.7bn, up by Qr1.8bn.

Was this article helpful?

Thank you for your feedback!

Read more about:  Middle East , Qatar