By Arno Maierbrugger/Gulf Times Correspondent,Bangkok
The Islamic finance sector in Qatar is moving towards a higher level: Efforts are underway to standardise and centralise the regulations for entire Islamic banking and finance industry in order to align the sector with the best global practices.
This is the core of the recent initiative of the Qatar Central Bank (QCB) to adopt central supervision for the sector, following the examples of countries such as Malaysia and Indonesia and others in the Gulf Co-operation Council in order to harmonise Shariah-compliant banking products and financial services.
The QCB — according to its Financial Stability Review for 2018 — said that measures were in place to establish a centralised Shariah supervisory body and create Shariah standards to govern Islamic banking products and transactions. This would end the practice of Qatari Islamic banks of self-governing by individual Shariah boards and also help overcome controversies over some non-standard financial product structures.
Further details are still to be announced, especially the date of the launch of such a centralised supervisory body, and how it will operate. This is of importance particularly for international financial institutions seeking to do Shariah-compliant business with Qatari banks and financial institutions.
The move by the QCB comes at a time when newest figures on the Islamic banking and finance industry have been released by the Malaysia-based Islamic Financial Services Board (IFSB), an international organisation promoting the Islamic banking and financial services industry. As part of the first dissemination of country-level data on detailed financials of the Islamic banking systems of 24 countries for 2017 and 2018, the IFSB has also looked into the financial data of the Islamic banking and finance sector in Qatar.
“This should help to enhance greater comparability of the sector with data of other countries, in line with our objective to improve stability and soundness of the financial systems of our member countries,” said IFSB’s secretary-general Bello Lawal Danbatta.
The structural data for the sector shows that Qatar’s currently four Islamic banks — Qatar Islamic Bank, Al Rayan Bank, Barwa Bank and Qatar International Islamic Bank — at the end of last year employed 2,256 people across a total of 75 branches nationwide. Total assets of the four banks as of the fourth quarter of 2018 were $96.14bn, slightly down from the assets held in the fourth quarter of 2017 of $96.73bn, while total Shariah-compliant financing, excluding interbank financing, stood at $64.89bn and combined sukuk holdings at $16.67bn as of end of last year. The sector was profitable with earnings before taxes and zakat of $1.8bn at revenue of $9.51bn in the fourth quarter of 2018, translating into return-on-equity of a sound 18.9% in the period.
As for core financial indicators, the average capital adequacy ratio of Qatar’s Islamic banks stood at 18.2%, well above the minimum ratio of capital to risk-weighted assets of 10.5% under the Basel III framework, ensuring that the banks have enough cushion to absorb a reasonable amount of losses before they would become insolvent.
In terms of asset quality, the share of non-performing finance of total financing stood at 1.3% — or $843.6mn — at the end of 2018, up from 0.8% a year ago, but clearly below the 3.3% average of European banks last year and the world average of 3.74% and backed by provisions amounting to 59.6% of the outstanding non-performing financing. The banks also had a quite low cost-to-income ratio of 13.4% in the last quarter of last year. As a comparison, ailing German banking giant Deutsche Bank, where Qatar holds a 6.1%-stake, at the end of 2018 showed a cost-to-income ratio of a whopping 92.7%.
The sectorial distribution of Shariah-compliant financing by the four Qatari Islamic banks by value was clearly dominated by real estate activities at $20.77bn as of end-2018, followed by construction at $4.24bn and financial and insurance activities at $2.04bn. Other dominant sectors with Shariah-compliant finance were mining, electricity, gas, steam and air-conditioning supply, professional, scientific and technical activities, arts, entertainment and recreation, as well as accommodation and food service activities. The sectors with the lowest level of Islamic finance were water and waste management, as well as information and confirmation, IFSB data showed.
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