Doha Bank’s $5bn fund raising through certificate of deposits (CDs) and Euro Commercial Paper (ECPs), which is slated to begin within the third quarter, will help it reduce asset liability mismatch and borrowing costs, strengthen the balance sheet and enhance the liquidity.
“There is no doubt that the substantial decline in oil prices in addition to the political turmoil in the Middle East has adversely affected all economic sectors including the banking sector and market liquidity. Therefore, many banks resorted to issuing debt bonds and instruments to overcome this problem,” Doha Bank chairman Sheikh Fahad bin Mohamad bin Jabor al-Thani told shareholders yesterday at the general assembly meeting which approved the fund raising plan.
The bank - which is slated to see a 6%-7% credit expansion this year in synchronisation with the industry average - will issue up to $3bn CDs and another $2bn by ECPs either through a special purpose vehicle guaranteed by the bank or directly by it. Both the instruments are expected to be issued in Qatari riyals or in various major currencies.
The total minimum amount per certificate will be $1mn or equivalent and maximum $1bn or equivalent. The tenor and interest rates would be determined as per the market conditions. The CDs can be issued to local as well as international investors.
Regarding the ECPs; the bank said the minimum amount per issuance would be $50mn or equivalent and maximum would be $1bn or equivalent. The maximum tenor would be up to one year.
Stressing that Doha Bank is looking for long-term borrowings on bilateral or multilateral terms, group chief executive Dr R Seetharaman said the proposed CDs and ECPs could be sourced at “competitive” rates because of Qatar’s strong credit ratings and the bank’s solid balance sheet.
“More than the capital adequacy, it (the $5bn funding) is going to help us in liquidity, lending and reduction of average cost of funding because with long term borrowings, there will be a stable functional flow,” he said. Highlighting that the majority of its lending towards vehicles, consumers, mortgage, contracts and real estate are medium to long term in nature; he said these are backed by short-term deposits through call, savings and current accounts and therefore there is a need to reduce the maturity mismatch.
“Credit in the banking industry has grown 2.8% in the first three months and we have grown in a similar synchronised form. By year end, we will have 6% to 7% growth,” he said, adding “if Qatar is going to grow 3.5%, then 7% will be the credit expansion and our model will also be aligned with that and the region itself is growing through similar momentum.”
Seetharaman also said the funding would also hedge the interest rate risk. “In the long term, interest rates will go up and you have to hedge risks in terms of price and liquidity and that will give stable funding, complying with Basel III guidelines,” he added.
The bank will have “sufficient cash flows to support” even if interest rate are hiked in the future on account of global growth or the US Fed decision, he said.
Asked whether the US Federal Reserve will increase interest rates, he said the US itself is slowing down (as per the last quarter data) and the Fed itself has changed its stance on increasing the interest rates by two times in a year than the earlier announced four times.
“I have not seen the possibility of increasing the interest rates in the June FOMC (the Federal Open Market Committee) meeting,” Seetharaman said.
Depending upon the local money market conditions, liquidity and interest rates, the Qatar Central Bank, which has a differentiated monetary policy despite riyal linked to the dollar, will take its position, he added.
India plans: 12 branches, $5bn exposure
Bullish on its operations in India, Doha Bank yesterday said it will seek relocation of a branch in Mumbai to another city and will broad-base its product portfolio by rolling out more schemes as part of efforts to achieve a synergistic growth in the Asian country.
“Our Indian operations are doing well. Our model is not to compete with the Indian banks but it is a Gulf Cooperation Council bank operating in India. So it is a synergistic model,” Doha Bank group chief executive Dr R Seetharman told reporters.
Doha Bank had completed the amalgamation process by March 31, 2015 and is aiming at least 12 branches and exposure of $5bn in India.
Having received licence, Doha Bank inaugurated its full-scale branch in Mumbai last year and has another one, acquired from HSBC Oman, which is now being proposed to relocate to another city.
“We may request for relocation because in Mumbai as we already have big branch there,” he said, adding it is now working on giving its preference to the Reserve Bank of India, which is the banking regulator of that country.
The bank, which is aiming 30% of its net earnings from overseas operations, has chosen to acquire the tailor-made portfolio of HSBC Oman, in view of the time taken to achieve organic growth in the vast Indian banking industry.
Doha Bank Kochi branch - which is now located at Golden Plaza, Near Mymoon Theatre, Chittoor Road, Ernakulam - will be shifted to LuLu Mall and is expected to be inaugurated by July/August, he said.
Stressing that its strength lies in bilateral opportunities because of vast India contingents in the Gulf countries and in financing towards small and medium enterprises as well as Indian corporates in the Gulf region, Seetharaman said the bank has come up with many bespoke schemes and is aiming to further enhance and strengthen the portfolio to consolidate its operations.
Sheikh Fahad, Dr Seetharaman and Doha Bank managing director Sheikh Abdul Rehman bin Jabor al-Thani, along with other board members, addressing the general assembly yesterday.