Interview: Abdul Hakeem Mostafawi

What reforms need to be addressed to facilitate further growth in real estate project financing?

ABDUL HAKEEM MOSTAFAWI: The regulatory framework needs to be addressed in a way that examines the supply chain and takes into account all stakeholders. It is difficult to assess risk due to the ambiguities around financing. Real estate is a local banking activity, unless initiatives offer unique circumstances or a high level of government support. It is important to develop the debt market in this regard to create liquidity and attract investment, which is key for the growth of real estate financing.

Will the new retail lending provisions aimed at improving asset quality impede growth in this segment or will institutions look to increase volume?

MOSTAFAWI: The new lending provisions have reduced the banks’ abilities to apply risk-based pricing and to transfer loans between banks. Provisions have eased off in the past two years. Generally, we do take a more conservative view on provisions than what is mandated by the regulators. There are 17 banks in the market and this large number has impeded the economies of scale needed to drive retail business forward. Banks have to take their own approach to provisioning and gain business through alternative means such as wealth management, which offers huge opportunities in Qatar.

How would you define Qatar’s banking and financial sector, and what factors are contributing to the slow take-off of industry consolidation?

MOSTAFAWI: The banking and financial sector is fundamentally strong, which is evident in the 2011 results, compared to the rest of the region and the world. However, there is a large number of banks operating in the market. Competition is strong mainly due to size of the population in relation to the number of competitors. The lack of consolidation has had an adverse affect on investor confidence. Banks may oppose investing in new technology and expanding into retail business, where return on investment is low, particularly at the initial stage. This return on investment is further reduced as the competition continues to increase. The market is becoming quite mature, especially in the retail banking sector. The proposed infrastructure and development plans in preparation for the FIFA World Cup in 2022 offer a substantial boost for the industry. Indeed, growth opportunities, particularly in lending, are numerous.

To what extent has the new credit bureau affected non-performing loans (NPLs)? How has the bureau adjusted lending practices?

MOSTAFAWI: The bureau has had a vast impact on the way we take credit decisions. It has set the stage for enhanced risk-based pricing, a key element of portfolio management and retail lending. It has increased banks’ understanding of the total exposure of their clients, thus contributing to reducing risk. Prior to the introduction of the credit bureau, we were not able to identify whether corporate clients had defaulted with other banks, but this is now feasible at a very early stage. We are now able to move to the next level and assess an applicant’s history instantly, allowing banks to better manage their clients and the risk. This will also be effective in the future, when hypermarkets may want to issue credit cards. Another positive aspect of the credit bureau is that many existing defaulting borrowers are forthcoming for settlement of their dues.

How is the current shortfall in qualified Islamic banking personnel being addressed?

MOSTAFAWI: This is a universal problem but it is important to remember that Islamic banking is fairly new. Its growth rate is impressive, and product enhancement has come a long way in the past decade. Demand for Islamic banking is growing at a rapid pace. The lack of standardisation is advantageous as it leaves room for flexibility, but as the industry progresses a more harmonised approach is likely to be adopted. However, we have seen an increasing number of Islamic banking professionals with specialised degrees in this sector.