Qatar’s banks have “emerged stronger, more resilient, and most importantly with a greater focus on the digital agenda,” despite the challenging environment as a result of the Covid-19 pandemic, said Omar Mahmood, head of financial services for KPMG in the Middle East & South Asia.
He was speaking in the context of KPMG recently releasing the third edition of its annual Qatar banking perspectives publication, where it has presented a “comprehensive and wide-ranging summary” of issues and trends in the global banking industry and examines how they are impacting banks in Qatar.
This year’s report comes with “enriching and valuable” contributions from KPMG’s financial services professionals along with some of the most prominent leaders in Qatar’s banking sector, who have shared their views on the topics and issues that are shaping the industry in the country today.
KPMG said “it was honoured by HE the Qatar Central Bank Governor Sheikh Abdulla bin Saoud al-Thani; Al Khaliji Commercial Bank Group CEO Fahad al-Khalifa, and Commercial Bank Group CEO Joseph Abraham, who have all generously provided their thoughts and insights into some of the most pressing issues and opportunities that the banking sector is facing today.”
This year, KPMG’s report covers the half-year results snapshot based on the financial analysis of eight listed commercial banks in Qatar as at 30 June 2021, and has three categories of exploration: Technology and innovation, regulatory landscape, and markets and customers.
Technology and innovation
Since the inception of virtual digital currency in 2009, also known as cryptocurrency, the digital currency concept has been rapidly gaining ground and acceptance.
The estimated number of unique active users of cryptocurrency wallets has grown significantly from 2.9mn in 2013 to over 68mn users in February 2021, leading prices to increase several fold over the past 24 months. The real question is when an Islamic crypto asset will emerge in the region.
Intelligent automation: Leading banks in Qatar are embracing the power of digital transformation for building resilience, offering contactless payments (e.g. Apple Pay), self-service solutions, and a pragmatic experience for the customers.
Neo-banks: An opportunity for disruption
In recent years, the switch towards digital banking has further accelerated, pushed by several factors that have changed customer behaviours in the region. The first catalyst of this acceleration has been the Covid-19 pandemic, which saw a large portion of branches closed and several social-distancing measures put in place for an extended period of time.
One of the main challenges hindering the effective implementation of anti-money laundering (AML) and counter-terrorist financing (CFT) measures is poor understanding of money laundering and terrorist financing (ML/TF) threats and risks.
Decision-making is sometimes inaccurate and irrelevant, relying heavily on human input and defensive box-ticking approaches to risk, rather than applying a genuinely risk-based approach. This is where new technologies can provide the most added value.
The strategic importance of ESG for banks in Qatar: It is clear that banks across the globe now recognise that their ESG agendas are a tool for returning to prosperity, as well as a deciding factor for many would be customers and investors. New ESG-tied products and models are being developed, tested and commercialised. Banks can no longer afford to overlook ESG and must embrace it to avoid constrained growth and increased regulatory and public scrutiny.
Taxation from a banking perspective in Qatar
The reform of the local and global tax environment is moving at a much faster pace than the past and complexity continues to increase.
Tax has become much more important for banks in recent years with various regulations around FATCA, BEPS, Transfer Pricing and the expectations around VAT, which has resulted in an increase in focus in this area.
Markets and customers
GCC is an overbanked region where working age population per local bank is significantly lower than the median of emerging countries.
The five largest banks in the region account for approximately 70% of the total assets, making it highly competitive for the remaining banks fighting for market share and customer base. This along with the global economy coming under stress leading to reduced profitability and coupled with increasing pressure by the regulators for capital requirements and compliance costs.
Transition away from LIBOR is likely to be complex, expensive, and a multi-year process which entails high risks that could impact profit margins of the bank, liquidity, system and policy changes and customer communication.