Strength in diversity: Qatar’s banking sector

Economic diversification is one of the strategic goals of the Qatar National Vision 2030 and with the first National Development Strategy 2011-2016 now successfully completed, Qatar is on track towards achieving this goal. According to the Ministry of Development Planning and Statistics, Qatar achieved an estimated 5.9% growth in the non-hydrocarbon sector during Q4 2016 which accounted for 52% of Qatar’s real GDP during the same period. With hydrocarbon growth falling during Q4 2016, mitigation through strong private sector growth demonstrates Qatar’s reduced dependence on oil and gas revenues and progress towards achieving economic sustainability.Qatar’s private sector is booming, especially in construction, and under the second National Development Strategy 2017-2022, resources will be dedicated to six priority sectors: manufacturing; professional and scientific activities; tourism; logistics; ICT, and financial services. While we are experiencing diversification across the economy in general, Qatar’s banking sector is diversifying too. One of the main areas of diversification away from conventional banking where Qatar is leveraging its competitive advantage over other countries is in Islamic finance. Islamic finance is a developing industry where banks either “Islamicise” existing banking products or innovate to create new Shariah-compliant ones. Currently, about 25% of Qatari banks’ collective QAR 1.4tn in assets is held by Islamic banks and Islamic finance has huge growth prospects both at home and worldwide. Qatar has the potential to capitalise on this growth due to its economic and political stability, knowledgeable Shariah scholars, strong financial institutions such as the QCB and QFC, an expected Islamic finance law, and Qatar’s excellent transport connectivity. Qatar has the highest GDP per capita in the world and is rated in the top seven countries globally for growth of high net worth and ultra-high net worth individuals, with 60% growth forecast over the next 10 years. With such a tremendous pool of capital and potential investors to call upon, the Qatari banking sector has diversified into specialised wealth and fund management services, whereas in previous years these services were performed by foreign banks. SMEs play a pivotal role in economic diversification and the Qatari banking sector is supporting SMEs by providing specialised banking services, as under normal circumstances SMEs usually find it difficult to access funds with their limited credit history and lack of assets. As well as diversifying horizontally, Qatari banks have also diversified geographically. A total of 18 banks licensed by the QCB make the Qatari banking sector one of the most competitive in the region and despite a prosperous domestic market, its relatively limited size has meant that Qatari banks have looked to expand internationally to find additional growth opportunities.The footprint of Qatari banks across the world is more than impressive for a country of Qatar’s size, collectively operating across a long list of countries in the Middle East, Africa, Europe and Asia. The advantages of international operations for Qatari banks are substantial in that they diversify income streams and also diversify risk away from concentration in just one domestic market. Other advantages are harder to achieve and require an increased level of expertise and hands-on approach. These are creating synergies by sharing knowledge among a banking group and creating economies of scale by combining core functionalities such as risk management, HR and treasury together as one.To conclude, Qatari banks have successfully evolved and adapted with the times to diversify into new products and new markets. The large extent of Qatar-based banks’ international operations can be seen as a reflection of their strength and also their confidence to compete with other banks internationally. The aggregate result of these strategies is that the Qatari banking sector continues to prosper despite more challenging economic conditions, with Qatar’s financial and insurance sector growing by 7.4% in Q4 2016.