Qatar's central bank shook up the country's banking scene with new regulations on Islamic lending.
Rules change benefits Islamic banks
Shares rise after central bank imposes limits on lenders Gregor Stuart Hunter Qatar's central bank shook up the country's banking scene with new regulations on Islamic lending. It seems many investors think the winners will be the "true" Islamic banks. Qatar Islamic Bank, Qatar International Islamic Bank and Masraf Al Rayan are each up more than 5 per cent since the central bank's circular was released last month.
Although the circular was released on August 29, it did not receive wide attention from brokers until this week. The rules prohibit conventional banks from allocating more than 10 per cent of issued capital to Islamic banking operations and bar them from opening additional branches for Islamic banking. They also limit mudaraba and musharaka activities to 5 per cent of a bank's total Islamic operations.
In recent years, Islamic banking has been one of the key drivers for conventional banks, especially Qatar National Bank, which had plans to open four more Islamic branches. At a retail banking conference in Abu Dhabi yesterday, Qatari banking executives said they were still sorting through the repercussions. "We've received notice from the central bank to wind down our operations. They have almost stopped our Islamic business," said Louis Scotto, the head of retail banking at Doha Bank. "Rumour has it that we were competing too strongly with the true Islamic banks and they petitioned the central bank."
Mr Scotto said the restrictions could make it more difficult to build relationships with some customers. "If you're only doing conventional banking, you're at a severe disadvantage," he said. Philip King, the head of retail at International Bank of Qatar, also said the regulations represented "a change in the landscape". The new rules go into effect immediately but the banks have more than a year to comply. Several brokerages have issued research notes saying they do not expect an immediate impact from the regulations because there is no immediate penalty for non-compliance. But less competition bodes well for the pure Islamic banks in the long run.