, I hope its for genuine reasons and not so that they can monopolize the so called Islamic banking sector in Qatar. It wouldn’t surprise me if other countries followed this step, this will push out a lot of the global banks that offer Islamic finance such as HSBCIslamic banking move is a potential game-changer
09 Feb 2011
This week, Qatar Central Bank surprised commercial lenders by stipulating that they shut down their Islamic finance activities by year end, in a move that will affect banking strategies. The move leaves unanswered questions and big strategic worries for the big Western banks with a presence in the region.
The central bank on Sunday sent a three-quarter page circular to banks specifying that they had the rest of the year to wind down their Islamic banking operations and could not do new business. Questions around implementation and scope remain, but the surprise move has far reaching ramifications for those banks that have tried to offer both commercial and Islamic lending.
Although the infrastructure around the provision of Islamic finance -- such as segregating assets and employing scholars on shariah boards to ensure compliance -- are onerous, the rewards are great for banks. Margin-wise, it can be one of the most profitable areas, and the closure of the 16 branches of the affected banks in Qatar will hit domestic business.
In the circular, the QCB cites the reason as being “to manage the risks”, according to a source familiar with the matter. This is a very unusual step as it means the big commercial and regional banks will need to shut down branches. Those affected include partially state owned Qatar National Bank and HSBC, as well as regional lenders like AlKhaliji bank. The latter bank opened its branch last year, and would be forced to close it to comply with the new rule.
That leaves the three local "pure" Islamic institutions, led by Qatar Islamic Bank, as the only ones that are viable buyers for the outstanding portfolios of assets that these banks now have to offload. There are questions about their ability to step in and fill the vacuum.
Nigel Denison, head of asset management at the Bank of London and the Middle East, said: “If Qatar goes ahead and fully segregates conventional and Islamic this will push more liquidity into the Islamic banks and help them to grow more quickly. This in turn should make them more profitable – hence the rise in the share prices of the Islamic banks in Qatar that we have seen recently.”
Ahmed Meshari, acting chief executive of Qatar Islamic Bank, has said the lender is interested in buying the Islamic banking assets of conventional lenders in the Gulf country, according to press reports.
Although a clarification is expected from Qatar's central bank, the main question lies in how they implement it and whether other areas in the region will follow suit. There is room for a climbdown of sorts. In 2008, Indonesia implemented a similar law, but has given lenders until 2023 to separate Islamic finance from the main banking arm, and issued licenses for pure Islamic subsidiaries to exist. There is no indication that something similar is on the cards from Qatar, and people are waiting for other regional banking hubs like Bahrain to make their position clear.
Bank Negara, the Malaysian authority, responded to the move by confirming that it does not plan to take a similar step. The Malaysian rules have always been seen as more flexible than the more conservative gulf regional authorities.
Being locked out of a lucrative regional business line may leave the big Western banks with a presence in the region with a strategic worry.
http://www.efinancialnews.com/story/201 ... mod=promos
