Abdulla Bin Saoud Al-Thani, governor of the Qatar Central Bank, talks to Kit Gillet about how the country has thrived during an economic blockade, and why its Islamic finance industry is growing.

Sheikh Abdullah Saoud Al-Thani

Being the governor of a central bank comes with challenges at the best of times, but when your country has been politically and economically blockaded by four of its neighbours – over accusations of fostering terrorism, something that Qatar denies – the stakes are even higher. Sheikh Abdulla Bin Saoud Al-Thani, the governor of Qatar’s central bank, has had to contend with this reality, after Saudi Arabia, the United Arab Emirates, Egypt and Bahrain cut ties with the country in June 2017.

“I think the economy has performed remarkably,” he says. “The banking sector has remained resilient, supported by sufficient capital buffers and low loan delinquency ratios.”

Mr Al-Thani contends that the challenges faced by Qatari banks, especially during the first months of the blockade, were adequately met by the government and the central bank. “Given the sudden and unannounced nature of the economic blockade, we needed to respond swiftly and proactively to ensure that the financial sector, and especially the banking sector, which comprises the mainstay of our financial system, remains in fine fettle,” he says. “The increase in public money in the system needs to be viewed in that context.”

Emergency moves

In the initial months of the blockade, when deposits from the four countries were rapidly flowing out, Qatar's central bank, along with the country’s sovereign wealth fund, the Qatar Investment Authority, pumped billions of dollars into the banking system. According to Moody’s, Qatar spent $38.5bn, the equivalent of 23% of its gross domestic product, on propping up the economy in the first two months of the blockade.

Mr Al-Thani says one key approach to ensuring adequate liquidity in the system was holding regular meetings with the leaders of financial institutions to understand potential liquidity concerns and address them head on. “Along with addressing liquidity challenges, we were also watchful to ensure that the system did not face any unwanted disruptions,” he says. “Accordingly, we collated data from banks and conducted stress tests to understand the tolerance level of the system. At the same time, a high-level committee was activated within the central bank, to assess the situation on a regular basis and keep ready action plans for meeting any untoward contingencies.”

Qatar’s banking sector recorded healthy asset growth in 2017, according to Mr Al-Thani, bolstered by credit demand from the public sector, and “to a lesser extent, credit demand from the private sector as well”. Profitability levels were also comfortable, he adds, especially in view of the challenges faced. Indeed, figures show that the 18 banks operating under the supervision of the central bank saw their total assets rise by nearly 8% in 2017, with profits up 3.7% compared with the end of 2016.

Mr Al-Thani also points to the central bank’s communication strategy, which was to reiterate its commitment to the pegged exchange rate and highlight the strengths of the banking sector.

Meanwhile, according to Mr Al-Thani, “the withdrawal of a significant amount of volatile non-resident deposits, especially after the blockade, has led to a significant amount of de-risking”, with banks also exploring ways to reach out to overseas markets while ensuring that the focus on their core business remains intact.

Islamic interest 

Qatar’s Islamic banking sector continues to grow in spite of the blockade: out of 10 domestic banks, four now conform to Islamic practice. “These banks account for about 26% of banking sector assets,” says Mr Al-Thani. “With conventional banking systems having been significantly challenged by the global financial crisis, interest in Islamic finance has been increasing. This has become evident with growing interest in the various investment opportunities available within the Islamic finance industry.”

In April 2018, Qatar successfully raised $12bn through a bond issuance, days after Saudi Arabia held its own $11bn bond sale. “Despite a roughly similar-sized issue by a neighbouring country earlier in the same week, the issue was oversubscribed by about four to five times, clearly reflecting the strength of the economy,” says Mr Al-Thani.

Weighed against the backdrop of the challenging geopolitical landscape, Mr Al-Thani believes that the country’s economy has shown its flexibility and resilience. “Although economic growth has been lower than what we would have liked it to be, this was the outcome of several factors, including the production restraints,” he says, adding that according to International Monetary Fund data, Qatar had the second fastest growing economy of the six Gulf Co-operation Council countries in 2017.

Meanwhile, the Qatari banking sector continues to adapt to the new realities. “The system has since returned to business-as-usual mode and regained the confidence of international investors,” say Mr Al-Thani, who adds that several of the banks have successfully issued long-term bonds. “Having learned important lessons from the economic blockade, I think [Qatari] banks have emerged much stronger and more resilient than they would have been otherwise.”

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