LONDON, 5 March 2007 — While the focus has been on the banking institutions from the UAE, Saudi Arabia and Kuwait which dominate the GCC Islamic banking sector, a new giant is emerging in neighboring Qatar.
Armed with a capital of just over $1 billion, thanks largely to a successful rights issue last August, and total assets in excess of $4 billion, Qatar Islamic Bank (QIB), which has been plagued by a high turnover of senior management since its establishment more than a decade ago, is now making up for lost time. Because of the timing of the rights issue, QIB was not in a position to leverage its new capital to the full.
Sallah Jaidah, chief executive officer of QIB, who has been in the job for less than two years, is spearheading a new strategy for the bank which will also see it venture into areas other than its core commercial banking activity such as investment banking and asset management. This strategy, Jaidah said, is already starting to bear fruit. QIB net profit for 2006 is up by 97 percent on the previous year.
Its joint venture Islamic bank, Asia Finance Bank (AFB), has started operations in Kuala Lumpur, and the bank has applied for a license from the Financial Services Authority (FSA) to set up a wholly-owned Islamic bank in the UK to be called Europe Finance House. QIB already owns the Arab Finance House which is incorporated in Lebanon and based in Beirut, and which is one of the first Islamic banks to be authorized under the new Islamic banking law in Lebanon.
The focus for 2007, Jaidah said, will also be on greater small-and-medium-sized business exposure, offering them the whole gamut of Islamic products such as Ijara, Istisna (small warehousing) and Murabaha.
Jaidah is not keen on the Tawarrruq cash management facility which is so popular among banks in Saudi Arabia and Dubai. “We are not geared up to use Tawarruq. We believe that some of the scholars are not supportive of the use of Tawarruq on Shariah grounds. Others are ambivalent. QIB looks negatively at the use of Tawarruq. As such we will not be introducing this product to our clients,” Jaidah said.
Consistent with its new image and structuring, QIB is also “repolishing” its retail outlets, which include 14 branches in Qatar with another 8 opening up in 2007.
The aim in 2007, according to Jaidah, is also to be very aggressive in leveraging investment opportunities, and to spin off a few long-term holding assets to generate certain earnings. The new strategy includes a long-term plan aimed at developing core business and exceptional items to create value for the shareholders.
Jaidah welcomes the increased competition in the local and regional markets. Qatar now has three full-fledged Islamic banks — QIB; Qatar International Islamic Bank (QIIB); and Rayan Bank. In addition Qatar National Bank, the largest bank in the country, has also launched a dedicated Islamic banking window, called QNB Islamic.
“Competition is healthy. We are not fearing anybody and we are trying to cooperate with each other. I am concerned about the application of the new risk-weighted capital adequacy requirements, especially if holding companies of banks are also required to be regulated. It is positive for Islamic finance that every body is getting on the bandwagon,” he added.
Jaidah is confident that the license for the European Finance House would be approved by the FSA by the last quarter of 2007.
The aim of the bank is not only to cater to Muslim businesses and investors there; but also to act as an accumulation entity for surplus GCC funds and to service the requirements of Islamic financial institutions entering the UK and European market. For instance, for many Islamic real estate deals sourced in the UK and Europe, the secondary or mezzanine financing is usually provided by a conventional bank in the form of an Ijara or Istisna facility.
European Finance House hopes to capture some of this business and also to offer conventional corporates in the EU and investors in the GCC alternative products such as European Grade A investments. This is a process of investor and end-user education, however, Jaidah admitted.
In Asia, the Asia Finance Bank, a joint venture between QIB and Gulf Finance House; Rusd Investment Bank; and Global Investment House, will serve as a base for business with Malaysia, and as a hub to explore opportunities in Singapore, Brunei and Indonesia — all of whom have shown a willingness to support Islamic finance. For the moment, China is not an immediate market target for QIB.
Asia Finance Bank will also originate Sukuk issuances in Malaysia and the region for distribution in Qatar and the GCC. Jaidah agrees that Qatar has lagged in the Sukuk market especially of leveraging the instrument in the gas sector. “We have to change the mindset of the clients and investors. You need to drive especially the semi-government institutions, and convince them that the products you are offering are competitive and provides alternative financing solutions. We are there now in terms of discussion. We will get there in terms of structuring and launching Sukuk,” he added.
However, investing in America is not an option now. Islamic bankers want to see US regulators “open their eyes” and see how successful Islamic finance is and to allow for alternative financing solutions to be introduced in the US market. Above all they want the US regulators to be more flexible in their licensing processes. QIB is in talks with the US authorities, but can only project a US presence in 2009 or 2010.
QIB is also seriously looking at Sudan and Pakistan with the possibility of setting up full-fledged local Islamic banks there. However, these talks are at a very preliminary stage.
