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Meetings planned over Qatar action on Islamic bank ops

Qatars central bank is reportedly due to meet with conventional banks to discuss their Islamic arms

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The news, which was carried on a number of Gulf news websites yesterday including Arabianbusiness.com, comes as bankers are said to be taking stock of what they are to do next, following the Qatar Central Bank’s unexpected announcement that conventional banks operating in the country would have to close or dispose of their Islamic banking operations by year end.

According to an article in Al Sharq, the Qatar newspaper, which reportedly cited unnamed banking industry sources, conventional banks have been told that one way forward might be for them to move their Islamic assets to a new Islamic bank. Stakes in the bank would be determined by the amounts deposited.

“The sources told Al Sharq that the banks would ask for an extension of the December 31 deadline to liquidate and close their Islamic operations,” Arabianbusiness.com said.

However, it quoted Doha Bank chief executive Raghavan Seetharaman as saying he was unaware of any scheduled central bank meeting or of the proposal to create a new Islamic bank.

As reported, the QCB’s surprise announcement on 6 Feb that it was to require conventional banks operating in the country to get out of Islamic banking sparked a surge in the price of shares in Islamic banks, and also prompted speculation that the central banks in some other countries with a high proportion of Muslim citizens could follow suit.

Some 18 banking companies with a total of 263 branches were registered in Qatar at the end of September, according to the QCB’s website. Of these, seven companies are categorised as "traditional foreign banks", including HSBC Bank Middle East, Standard Chartered Bank, United Bank, Arab Bank and BNP Paribas, of which only two – Jordan-based Arab Bank and London-based HSBC – are shown as having dedicated Islamic branches, of which each has only one.

In total, the seven foreign banks operate only 20 branches in Qatar, including the two Islamic ones.
Last month, New York-based JPMorgan Chase also received a licence to operate in Qatar.

‘Difficult to manage risk’

In astatement on its website dated 10 Feb, the Qatari banking regulator noted that the “recent phenomenon” of Islamic branches of conventional banks had led to a “co-mingling of their assets and liabilities”, which it said, given the “overlapping nature of non-Islamic and Islamic activities” at the conventional banks, had “made it difficult to properly manage the risks encountered by these banks”.

Writing in the Financial Times, Andrew Cunningham, a US-based Middle East consultant, noted that “however inconvenient the new rules may be to conventional banks, the QCB should be applauded for highlighting the significant challenges of supervision, transparency and financial reporting that the co-mingling of Islamic and conventional business entails”.

“The regulator is right to point out that certain Shariah-compliant deposits are fundamentally different from conventional ones: the return on Islamic investment accounts is variable and dependent on actual returns on designated assets,” Cunningham writes, in a piece carried on the FT’s website today.

“No western regulator would allow a bank to put mutual funds on its balance sheet next to conventional deposits and loans, yet that is in effect what happens when a conventional bank combines its Islamic and conventional operations into one set of accounts.

“Such commingling also raises issues of consumer protection. To reflect their different risk profiles, bank deposits and Islamic investment funds should be sold in different ways and be subject to different standards of customer suitability.”

Meantime, an article in Arabianbusiness.com today notes that Bahrain’s banking authorities say they do not have any plans to shut the Islamic operations of its conventional banks. Bahrain, which is located across a short stretch of water from Qatar, is a major Middle East banking hub.

Qatar, which is located on a Connecticut-sized penninsula adjacent to Saudi Arabia in the Persian Gulf, has a population of around 1.63 million people. It is the world’s largest producer of liquified natural gas, and in part for this reason its population is among the world’s wealthiest, when measured on a per capita GDP basis.

The country is due to host the tenth Gulf Cooperation Council Banking Conference on 23 and 24 March, when the topic "GCC banking and its role in development in light of current updates — reality and ambition" will be addressed.

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