Qatar’s banks have demonstrated significant lending growth over the past decade, and banking sector assets are likely to continue to grow on the back of the nation’s expansion over the coming years. Much of the projected credit growth will be derived from increased exposure to the government and the various quasi-government entities which are the principal driving force behind the nation’s development. This connection to the sovereign brings the advantage of limiting risk and, thanks to a clearly signposted national development plan – Qatar National Vision 2030 – it also provides lenders with a useful roadmap of future lending opportunities.
Limited Scope
However, the local market has its limitations. The nation’s population, as of January 2014, was around 2m, according to figures from the Qatar Statistics Authority (QSA), with the UN estimating that only around 26% of this total is attributed to Qatari nationals. The remaining inhabitants of what has become one of the world’s most globalised states are largely expatriates from elsewhere in the Arab world and Asia, with India the Philippines, Sri Lanka, Nepal, Bangladesh and Pakistan prominently represented within the mix.
The QSA’s most recent Labour Force Sample Survey, from the third quarter of 2013, showed that the average monthly salary for men was QR10,000 ($2739), which compares favourably to regional and European averages. However, the figure is somewhat misleading as salaries in the GCC region vary widely, with nationals and some expatriates earning considerably more than the larger number of blue-collar workers and labourers needed by the rapidly expanding economies of the Gulf. Qatar’s bankable population, therefore, is limited.
The relatively small size of the total population in Qatar, meanwhile, means that targeting the greater number of lower-income inhabitants through micro-lending, which has met with some success in larger markets such as Egypt, is not a practical option.
Moreover, the demographic limitation is joined in the domestic market by some regulatory restraints, which are the result of the Qatar Central Bank’s (QCB) efforts to ensure the stability of the sector. In recent years it has adopted a conservative regulatory stance that has brought it broadly in line with international standards, including introducing more stringent regulations regarding personal loans, foreign currency loans and reserve requirements (see overview).
However, while this has been welcomed by ratings agencies as a positive display of probity on the part of the regulator, it has narrowed profit margins and placed further pressure on banks’ bottom lines.
Responding to the limitations of the local market, Qatari banks have begun to look beyond the nation’s borders to find larger markets, many of which allow for a greater degree of commercial aggressiveness.
A look at the foreign acquisitions of the nation’s largest four lenders by assets reveals that they have deployed a range of investment models across a number of geographic targets.
Exporting A Brand
As the fastest-growing bank in the GCC region in terms of assets, Qatar National Bank (QNB) has led the field of local lenders expanding across the region and beyond. The bank has exported its brand to Kuwait, Oman, Yemen, Lebanon, Syria, France, Switzerland, the UK, China, India, Singapore, Mauritania, Sudan and South Sudan.
The bank has also established representative offices in Libya and Iran, and made significant investments in the form of associates, subsidiaries and affiliates in Egypt (National Société Générale Bank), Tunisia (Tunisian-Qatari Bank), Indonesia (Bank Kesawan), the UAE (Commercial Bank International), Iraq ( Mansour Bank) and Jordan (HBTF Bank). Speaking to OBG, Joannes Mongardini, head of economics at QNB Group, explained the bank’s broader expansion plan, “QNB’s strategy has always been to be the number-one bank in the region, which has been achieved. Now the vision is to broaden into the Middle East and Africa.”
The Commercial Bank of Qatar, founded in 1975 as the first private lender in the country, has been slower to move out of the domestic market. A strategic alliance with the National Bank of Oman in 2005 was followed by another with the Sharjah-headquartered United Arab Bank in 2007. However, in March 2013 the bank announced its first significant foreign purchase, when it agreed to acquire 70.84% of Alternatifbank in Turkey.
Qatar Islamic Bank (QIB) has shown a greater appetite for expansion. As well as fully owning QIB Sudan, which opened for business in July 2013, it holds a 37% stake in Lebanon’s Arab Finance House (the first fully fledged Islamic bank in that country), a 41.7% interest in Malaysia’s Asian Finance Bank and a 70% controlling stake in QIB UK.
Additionally, with a similarly strong push towards international expansion, Doha Bank opened four new overseas offices in 2013 – in Toronto, Sydney, Hong Kong and Shanghai. The bank now operates in a total of 16 countries, and is aiming to secure licenses to open offices in India and Saudi Arabia.
Looking Abroad
As a relative newcomer to the market, Masraf Al Rayan’s focus has been largely on securing its domestic foothold, but in the past year the bank has shown signs that it is ready to look abroad for future growth. In February 2013 an extraordinary general assembly meeting approved the acquisition of a “strategic share in a commercial bank in Libya”, to be carried out through a capital increase in the targeted bank subject to the results of a financial and legal due diligence process and the approval of the relevant Qatari and Libyan authorities. As a result of the decision, the company’s board has been granted authority to deploy up to QR1bn ($273.9m) on the deal, for a period of two years.
Furthermore, in February 2014, Masraf Al Rayan announced that it had completed the acquisition of the UK’s Islamic Bank of Britain (IBB) by its wholly owned subsidiary, Al Rayan (UK) Limited. Masraf Al Rayan also indicated that it will be raising IBB’s Tier 1 capital by issuing new shares.
Qatar’s banks, therefore, have elected to expand their foreign interests by not only introducing their brand into other markets, but also buying significant, although often minority, interests in successful financial institutions. Expansion into other geographic areas, such as Malaysia, represents a response to increasing commercial activity and growing trade linkages with the GCC.
Greater Managerial Role
Qatar’s Islamic lenders, meanwhile, have other factors to consider, such as locating markets where sharia-compliant finance is already widely accepted. Likely candidates in this regard include Egypt, Jordan, Malaysia, Indonesia, Turkey, Morocco and Algeria.
Whatever the strategic rationale, moving into foreign markets from a relatively small banking sector like Qatar’s is a challenging proposition, involving both complicated risk assessment and the ability to negotiate new regulatory regimes. However, after a sustained period of investment in human resources, those Qatari banks that are in an expansionary mode seem confident that they can not only buy into foreign markets, but also take on a greater managerial role in their acquisitions.
“We have taken on expertise from around the world, from banks such as Banque Saudi Fransi, Lloyds and Barclays. Whereas before, our representative on their boards would be someone from our own boardroom level, now we place people from the executive level there. You want to bring it down to the operational level, and what better way than people from elsewhere in the QIB group getting involved at the operational and strategic level,” Gourang Hemani, the chief financial officer at QlB, told OBG. Given the high levels of capitalisation amongst Qatar’s banks and the increasing level of expertise available to them, most industry observers expect to see this expansionary trend and the more hands-on approach to continue developing, as banks seek out additional opportunities.
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