HE the Governor of Qatar Central Bank, Sheikh Abdullah bin Saoud al-Thani, affirmed that the banking system in Qatar can easily face unfavourable circumstances because the banks operating in the country, both local and foreign, enjoy high capitalisation that enables them to face internal and external risks.
In an exclusive interview with Qatar News Agency (QNA), the QCB governor stressed that the exposure of the banks operating in Qatar, especially to the blockading countries, is limited, adding that it has faded with the continuation of the blockade.
He noted that the improvement in the efficiency of the banking sector has helped enhance the ability of these banks to confront any shocks through the application of the latest international supervisory standards.
An example of these standards is the International Financial Reporting Standard No 9, which is related to financial instruments and financial provisions.
The QCB governor pointed out that the stress tests carried out by the Bank are based on the maximum assumptions of shocks to the banks whether through internal or external factors.
The results of these tests showed the ability of local banks, especially banks with branches abroad, to withstand any potential risks or shocks.
* Provision of financial liquidity
Regarding the ability of local banks to provide liquidity and meet the financial requirement of the State, the governor explained that the banking sector in the country has been working on strengthening basic liquidity structures since the beginning of the unjust blockade on Qatar.
He added that the improvements, done to the structure of financing entitlements, have contributed to the strengthening of the liquidity of the banking sector and the liquidity of assets.
He pointed out that the analysis of pressure tests showed the ability of these liquid assists of high quality in providing appropriate support if pressure occurred due to sharp withdrawals.
He stated that the stability of oil prices, in conjunction with the current account surplus, is expected to improve the liquidity of local and foreign currency; this confirms the readiness of the banking sector to meet the growing demand for loans, both public and private, in line with national priorities.
The QCB governor said that the international reserves at the bank amount to QR144.7bn by the end of April, noting that although these reserves are more than enough to face challenges arising from the unjust blockade imposed on Qatar, they do not represent the international reserves of the State; they are only a small part used for monetary policy purposes and to meet the currency issued and local banks’ purchases of dollars as part of the Central Bank’s exchange rate policy.
Therefore, Qatar’s financial reserves are very strong and capable of countering any negative effects of the blockade.
“Qatar Central Bank aims to maintain the stability of the Qatari Riyal against the US Dollar. This required the Bank to maintain adequate reserves of its foreign reserves, which must not be less 100% of the total issued currency,” he stated.
He also said that “data available until the end of April of this year indicate that the ratio of foreign exchange reserves to the currency issued has increased to more than 86.6%, which is more than eight times.
He added that the international reserves and liquidity in foreign currency amounted to about QR144.7bn at the end of April 2018, achieving a growth rate of 10% compared to June 2017.
HE Sheikh Abdullah bin Saoud al-Thani highlighted the role of QCB in providing financial liquidity to the State under the unjust siege imposed on it.
He noted that the Bank’s strategy during the first months of the siege focused on ensuring sufficient liquidity and reassuring the deposit holders of the Bank’s full commitment to the maturity dates of the withdrawals.
Therefore, periodic and regular meetings were held with officials of the financial institutions to identify any potential liquidity challenges and to develop appropriate plans to deal with them proactively.
In the meantime, cash was provided to local banks to counter any withdrawal of deposits.
The banks used their government securities, which provided them with the required liquidity and gave a boost to the repo market.
Many banks in Europe and America expressed their willingness to continue working with Qatari banks.
As a result, the losses were compensated very quickly and the business was usual, the QCB governor said.
As for attempts to weaken the currency locally and externally, the QCB governor explained that the currency (Qatari Riyal) was under pressure in the early days of the blockade, especially in the local markets and eventually the impact spread to the external markets.
However, the prices in local markets quickly returned to normal, and currently the external market prices have come close to the official rate, thanks to the strength of the Qatari economy and the rapid response to these attempts.
The Central Bank has been closely monitoring the developments, and has been in contact with the banks that have branches or representation abroad to understand the details and complexities of the process.
After recording evidence of attempts to harm the Qatari currency, Qatar Central Bank conducted legal investigations into these attempts by contracting with a well-known law firm, the governor said, noting that the Central Bank had provided the law office with the information and is awaiting the official report and the outcome of the current litigation proceedings of the office.
According to the legal authorities to whom the file was referred, Qatar will resort to all means to prove the damage, and will announce the results in a timely manner, he added.
* Addressing cyber threats
On the readiness of Qatar Central Bank and its ability to address any cyber attacks or hacking that may affect its financial activities, the governor explained that the Central Bank has an information security department in the IT Department which develops and implements security policies and procedures necessary to protect the Bank from any actual and potential attacks, using the latest systems.
It also monitors the security records to protect the network of the Central Bank, and formed a team to respond to incidents of information security to respond and verify cyber attacks.
The Central Bank also communicates with the competent authorities in the State such as the Ministry of Interior and the Ministry of Transport and Communications in order to exchange information and report any attempts of cyber attacks.
He noted that the Central Bank’s security devices have addressed numerous cyber attacks and persistent hacking attempts.
HE the Governor of Qatar Central Bank Sheikh Abdullah bin Saoud al-Thani said that total assets in Qatar’s banking sector, excluding Qatar Development Bank, stood at QR1.38tn at the end of August 2018, registering a growth of nearly 5% year on year.
The share of total credit was about 67% of total assets, while the share of investment was about 16.3%. On the liabilities side, resident deposits accounted for 47% of total liabilities while banks balances were around 18%. He told QNA that the share of Islamic banks operating in Qatar amounted to about 26% of the total assets of the ten local banks by the end of August 2018, which is almost its share at the end of 2017.
The QCB governor said that domestic liquidity represented by broad money supply (M2) amounted to QR5.8bn at the end of August 2018, an increase of 4% over the same period in 2017, despite the decline in the second quarter of this year, noting that the tear 2017 witnessed a growth of domestic liquidity by more than 21.3%. The International Monetary Fund (IMF) expects in the report of Article IV consultations a growth of 5.5% in local liquidity during the current year, ensuring the provision of adequate funding for the productive sector in line with national priorities, he added.
With regard to QCB expectations for growth of domestic banking assets and liquidity in national currency during the current year, HE Sheikh Abdullah bin Saoud al-Thani stated that despite the economic siege, cash and liquidity indicators in 2017 were largely in line with developments in the real economy and the external environment.
All liquidity indicators improved, with the initial liquidity of cash reserves rising slightly more than the previous year.
Liquidity in general has grown, represented strongly by the broad money supply (M2). Commercial banks’ assets also continued to grow well.
Data available until the end of April 2017 indicate that these variables continue to grow.
Commercial banks’ assets grew by 3.5% year-on-year while reserve cash registered a strong growth by 14.3%, QCB governor added.
On the treasury bills issued by QCB, the governor said that the value of treasury bills issued during the current year until May 2018 amounted to about QR5.75bn.
Taking into account the outstanding debts, the balance of the existing balances will be about QR5.3bn.
He noted that QCB issues treasury bills on a regular basis in the light of local, regional and global developments.
Accordingly, the Bank decides on the size of the required issues in the coming period.
He noted that the Central Bank issues treasury bills according to different periods ranging from three to nine months.
* Combating money laundering
HE Sheikh Abdullah bin Saoud al-Thani presented an overview of the strict financial and legal systems to combat money laundering and terror financing crimes, and the extent of co-ordination between Qatar and the rest of the world countries and relevant institutions.
He noted that there are more than 56 different financial institutions (banks, insurance companies, exchange companies, finance companies and investment companies) working under the umbrella of the Central Bank, who are all committed to the standards of anti-money laundering and countering terror financing.
In his interview with Qatar News Agency (QNA), the QCB governor added that Qatar is implementing the highest standards in the field of anti-money laundering and countering financing of terrorism, based on a set of frameworks and mechanisms that include legislative and legal frameworks, regulatory frameworks, international frameworks, application of international sanctions and specific guidelines for listing on national terrorism lists, and coordination at the international and national levels to combat money-laundering and the financing of terrorism.
He said that the legislative and legal frameworks are represented by Law No 4 of 2010 on combating money laundering and the financing of terrorism and Law No 11 of 2017 on combating terrorism.
This is in addition to a number of laws related to these frameworks, including the Qatar Central Bank Law and the Regulation of Financial Institutions promulgated by Law No 13 of 2012, Commercial Companies promulgated by Law No 11 of 2015 and Law No 15 of 2014 organising charitable works in the State.
As for regulatory frameworks, the governor said that Qatar Central Bank issued executive instructions to financial institutions in June 2010 and have been updated more than once.
In general, they are summarised in the development of rules and mechanisms for combating money laundering and financing of terrorism in financial institutions.
The requirements of this control depend on the role and responsibilities of the human elements in the financial institutions and the role of technical and technological systems as well.
It also includes customer identification and due diligence measures for each category of clients taking into account the quality of their respective economic activities, the importance of training and development of the human element, and the application of the risk-based approach as the cornerstone of appropriate regulation and effective operations of financial institutions.
Attention was also paid to the role of internal and external audit of financial institutions, the application of a strong governance system, and the control primarily on the desktop control system, as well as field observation.
The governor of Qatar Central Bank affirmed that QCB is imposing financial and administrative sanctions and penalties on financial institutions in cases of shortcomings or observations through testing their anti-money laundering and terrorism financing systems.
Some cases are referred to the designated courts, and there were penalties issued against individuals and entities as a result of violations to the instructions and laws of anti-money laundering and countering terrorism financing.
On the international frameworks, he said that the Central Bank is keen on the optimal application of international standards and guidelines issued by international institutions in this regard.
These include the recommendations of Financial Action Task Force (FATF), which includes 40 recommendations and 11 immediate outcomes, as well as the Egmont Group guidelines.
On the application of international sanctions and listing rules to national terrorism lists, he said Qatar is committed to the implementation of international sanctions on names that are listed on the international sanctions lists for terrorism links, especially the resolutions of the UN Security Council, such as resolution 1267 of 1999; resolutions 1988, 1989 and 2253 on Al Qaeda and the ISIS organisations; Law No 11 of 2017 concerning the fight against terrorism and the rules on listing names of persons and entities on the terrorists list and the terrorist entities list, and how to apply penalties once those names included by the attorney-general of Qatar.
On co-ordination at the international and national level to combat money-laundering and the financing of terrorism, the governor of Qatar Central Bank stressed that there were many committees co-ordinating at the national level, including the co-ordination committee between the three financial authorities in Qatar (Qatar Central Bank, Qatar Financial Center Regulatory Authority, and Qatar Financial Markets Authority).
Internationally, QCB co-ordinates with the IMF on developing the anti-money laundering and countering terror financing systems through technical co-operation programmes in that field between the two institutions.
* Basel Committee guidance
Commenting on Qatar Central Bank’s commitment to implementing the Basel Committee’s latest guidance and updating instructions to develop the banking system, HE Sheikh Abdullah bin Saoud al-Thani said that the Bank has been and continues to be committed to most Basel Committee issues, starting with the basic principles, effective Basel II and Basel II capital adequacy standards, which were recently updated by all Basel III standards from January 2014 to April 2018.
Basel III has been implemented to the capital adequacy of conventional banks and the Islamic Financial Services Board standard corresponding to Islamic banks, leverage ratio, liquidity coverage ratio, and the ratio of stable resources (NSFR). He stressed the Central Bank’s commitment to apply requirements of banks with significant impact on the system (DSIBS), the guidelines for the implementation of the capital plan, the treatment plan for banks with significant impact, supervisory review procedures and internal procedures for capital adequacy assessment (ICAAB), the fluctuation margin, and finally the executive instructions for the measurement and control of large exposures, which will be implemented from the beginning of next year 2019.
He revealed that an analytical study is currently under way, to be followed by the issuance of practical instructions during 2018 and 2019, on compliance with the Basel III updates on the Basel III standard with respect to: capital treatment of investment funds (within the capital efficiency standard), capital treatment for price risk interest (within the ICAAB standard), changes in the measurement of credit risk weights according to the standard method and measurement of operational risk in the capital adequacy standard, and the third modified axis of market discipline, disclosure and transparency.
He stressed that all traditional and Islamic banks in Qatar are committed to implementing all instructions issued by the Central Bank regarding Basel III, and branches of foreign banks are committed to implementing Basel III according to their main positions with the Central Bank’s follow-up.
On the extent to which local and foreign banks operating in the country respond to their compliance in accordance with the instructions of the Central Bank regarding the follow-up of loans and financing and monitoring of exposures, he said that in the matter of loan follow-up, instructions were issued in November 2011 obligating all banks to obtain non-objection of the Central Bank before granting or renewing any credit facilities within Qatar in foreign currency and when granting or renewing any credit facilities outside Qatar, the instructions also required that the Central Bank be informed of the credit of more than QR10mn granted by the National Bank branches and its subsidiaries abroad.
He pointed out that the aim of these instructions is to impose the bank’s supervision on the granting of credit outside the border and follow it to work to reduce the credit risk and currency risk and interest rates and banks have complied with these instructions.
With regard to the financing, the governor explained that the Central Bank issued instructions in November 2017 confirming that banks comply with the previous instructions, which requires banks to obtain the Central Bank’s non-objection before issuance of any debt or sukuk or similar to finance their banking activities or to strengthen its capital base.
Banks are also required to obtain non-objection by the Central Bank before direct lending from the local or international market for more than QR150mn or its equivalent.
He pointed out that the aim of these instructions is to follow up this type of financing to reduce the risks related to liquidity, cost, size and form of presence in international markets, and banks have complied with these instructions.
On the latest developments regarding the merger procedures of Masraf Al Rayan, Barwa Bank and International Bank of Qatar, HE Sheikh Abdullah bin Saoud al-Thani explained that the merging proceedings started under the supervision of QCB, and then there were some developments that resulted in a bilateral agreement between International Bank of Qatar and Barwa Bank to merge, and the withdrawal of Masraf Al Rayan from the process for considerations.
The merging procedures between the two banks are currently being completed, especially as the two banks are not yet listed on the stock exchange, which facilitates the procedures and speeds up the process.
* Real estate demand
Regarding QCB issuing of the real estate index and if it intends to issue other indicators, the QCB governor said that the growth of the population in Qatar, the increase in per capita income and the increase in well-targeted public spending have led to increased demand for real estate.
The real estate sector has grown rapidly since 2005, with the exception of short periods.
The global economic downturn and the global financial crisis have affected the real estate sector and Qatar which has not been immune to this recession.
Taking into account the openness of local banks to the real estate sector, the QCB governor said that it has become necessary for banks to depend on reliable indicators of real estate prices to assess their credit portfolios for real estate.
In addition, real estate price indices are early warning signs, therefore, QCB issued in 2011 the Real Estate Price Index (REPI) as part of the Central Bank’s efforts to develop early warning indicators to detect potential economic vulnerabilities or threats.
The QCB governor added that the process of developing standard indicators to detect weaknesses in the financial sector is a continuous process at QCB, therefore, the Central Bank is making continuous efforts to find a variety of standard methods and making improvements to its existing indicators.
On QCB’s most important strategic plans, the governor noted that in December 2017, QCB, in co-operation with the supervisory bodies of the State, launched the Second Strategic Plan for Financial Sector Regulation (2017-2022) which is aimed at developing guidelines for building a strong financial sector that is flexible and achieves sustainable economic growth in accordance with Qatar National Vision 2030.
He noted that for this reason, QCB has focused on two main initiatives (development and strategy). In terms of development, QCB is currently developing a strategy of financial inclusion and education to expand the financial sector base by taking action on both supply and demand sides and encouraging SMEs, in line with the objectives of Qatar National Vision 2030 and the National Development Strategy 2018-2022, as well as achieving economic diversification and encouraging private sector participation.
In terms of strategy, the QCB governor said that Central Bank is seeking to implement the financial technology strategy (Fintech) and establish a centre for financial technology, and is constantly working to strengthen the supervisory and monitoring systems to maintain the integrity and stability of the financial system and ensure its flexible enough to address the regional and global challenges.
* Training for staff
The QCB governor stressed the importance attached by QCB to the development of human capital in the financial sector.
He explained that this is one of the five objectives in Second Strategic Plan for Financial Sector Regulation (2017-2022), as the development of the skills of the employees and raising the efficiency of their performance is one of the main objectives of QCB.
He pointed out that training courses and workshops were held especially for QCB’s staff from all departments, adding that these the training courses are implemented in cooperation with the institutions and training centres in the State of Qatar.
The QCB governor pointed out that a number of QCB staff have been sent to participate in the specialised courses held by regional and international training institutions and centres outside Qatar to keep pace with the rapid developments both in banking and technological progress.
He added that QCB is keen on training its cadres in the latest methods of detecting banking fraud and cyber crimes and money-laundering practices as well as the latest international practices in supervision and control, financial stability, international statistical classifications, and international accounting standards.
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