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WorldJune 2 2014

Qatar's CBG tries to stay ahead of the game

Growth may be buoyant but that by no means makes managing the Qatari economy an easy task. Central bank governor Sheikh Abdulla Bin Saoud Al-Thani describes the steps that he has taken to make sure that such growth is sustained in the medium and long term.
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Qatar's CBG tries to stay ahead of the game

For the Qatar Central Bank (QCB), keeping abreast of the country’s swift economic development is no easy task. The bank's governor, Sheikh Abdulla Bin Saoud Al-Thani, is currently managing the economic impacts of massive infrastructure spending, the ongoing transition to non-hydrocarbon growth, as well as the implementation of long-term strategic development objectives.

In turn, these dynamics have created both challenges and opportunities for the QCB, particularly in terms of controlling associated inflationary pressures from various sectors of the economy. Similarly, the central bank has had to act decisively to develop local currency debt markets in the country, in an effort to absorb the excess liquidity in the banking sector.

New rules, more power

Cumulatively, Qatar’s challenges are both pressing and diverse. To meet these growing demands, in late-2012 the QCB introduced the Central Bank Law No.13, which initiated substantial changes to the country’s financial regulatory environment.

“This law empowers the QCB to be the competent supreme authority with regards to regulation, supervision and payments and settlement systems in Qatar,” says Mr Al-Thani. “Under this law, the QCB, the Qatar Financial Market Authority and the Qatar Financial Centre Regulatory Authority have started working together in a coordinated and mutually supporting manner to harmonise Qatar’s financial sector regulatory framework and strengthen the financial market infrastructure.”

The introduction of the new law, which is still in its infancy, has also created a new Financial Stability and Risk Control Committee tasked with identifying risks arising from across the financial services industry. The changes have ostensibly created a more streamlined regulatory environment for the country’s financial services sector, despite some uncertainty as to how this new structure may perform over the longer term.

Building on these changes, the Qatar Central Bank has also devised a strategic plan for 2013 to 2016, designed to support the country’s long-term national development vision. “At the core of this strategy is the development of a diversified and more resilient economy – which will have reduced reliance on hydrocarbon revenues – in which the financial sector will have a predominant role. In achieving the goals of the strategic plan, the financial regulatory infrastructure will meet international standards and best practices,” says Mr Al-Thani.

Market maker

In tandem with these developments, the QCB has been highly proactive in promoting the banking sector’s growth, as well as stimulating the development of local debt markets. “The banking sector of Qatar is profitable and robust with sufficient liquidity to meet the expected increase in demand for credit. It may be noted that the deposit growth of the banking system has been higher than the credit growth in the past two years, leaving some cushion for the banks to support additional credit demand from the economy. This has helped banks to reduce their dependence on external sources of funding and the associated risks,” says Mr Al-Thani.

“Furthermore, the QCB is actively developing the government bond market to help banks manage their liquidity.”

In this respect, the central bank has been widely praised for developing both conventional and Islamic debt markets. Since the government’s first sukuk in the international markets in 2003, and the QCB’s Qatari riyal-denominated sukuk in 2010, major strides have been taken to boost the domestic debt market. Auctions in treasury bills with three-, six- and nine-month maturities have been executed monthly since 2011, while three- and five-year maturity government bonds have been auctioned quarterly since March 2013, to the value of QR4bn ($1.1bn) and of which 1 billion are sharia-compliant.

In terms of the banking sector, its performance has been assisted by a positive economic environment. “Given the strong macroeconomic fundamentals and continued government support, Qatar’s growth outlook remains strong, inflation is expected to be benign and Qatar’s financial sector outlook is buoyant,” says Mr Al-Thani.

“The capital to risk-weighted asset ratio of the Qatari banking system was 16% at end-December 2013. This should facilitate smooth transition of banks in Qatar to the Basel III regime without recourse to significant capital injections. Moreover, in view of the fiscal surpluses, the government has the capacity to inject further capital in the banks.”

In light of current growth trends, as well as the comfortable position of the banks, the sector is expected to record stable growth over the medium term. For the QCB, this is an encouraging outlook. Its challenge will now be to maintain this stability over the medium term, as the country gears up to host the 2022 FIFA World Cup.

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Read more about:  Middle East , Qatar