Qatar National Bank (QNB) could bear the brunt of Qatar's new rules governing Islamic banking. The new regulations, revealed in a central bank of Qatar circular last month, limit conventional Qatari banks from having more than 10 per cent of shareholder equity in Islamic financial products and not more than 15 per cent of total assets.
In addition, conventional banks cannot have more than 5 per cent of their total loan books in the Islamic financing products mudaraba and musharaka. "What happened is Islamic banking has been growing so fast in the country. Almost all new loans issued in the last six months were under Sharia-compliant law," said Tarik el Mejjad, an analyst at Nomura in London. Other brokers said it appeared the central bank was forcing banks to choose whether they would focus on conventional lending or try to be Sharia-compliant, rather than trying to be both.
This most directly affects QNB, a conventional bank that has Islamic financing as one of its key drivers of growth. Sharia-compliant products contributed 16.4 per cent of the bank's first-half profits. The bank is already close to the new limits established by the central bank and would have to increase deposits elsewhere to continue expanding the Islamic segment of the business, Mr el Mejjad said. Most other conventional banks in Qatar have very small Islamic banking businesses.
In addition to the other regulations, the central bank is discouraging conventional banks from opening new Islamic branches. "The central bank is not accepting any new applications to open further Islamic branches at the moment," the circular said. QNB has four new Islamic branches approved but they are not yet open. It is waiting for further clarifications from the central bank on the rules regarding the branches, including whether the new regulations apply only to operations inside Qatar or outside the country as well. The rules come into effect immediately, although there is a 15-month timetable for banks to fully comply.
QNB shares lost 0.4 per cent yesterday to close at 152.17 rials.