Interview: Sheikh Abdulla bin Saoud Al Thani
To what extent have efficiency and transparency increased following the QCB’s assumption of its role as overall regulator of the financial system?
SHEIKH ABDULLA BIN SAOUD AL THANI: QCB Law No. 13, which was enacted in 2012, introduced significant changes to the regulations and oversight of Qatar’s financial sector. Under this law, the QCB, the Qatar Financial Markets Authority (QFMA) and the Qatar Financial Centre Regulatory Authority (QFCRA) have begun working together in a coordinated and mutually supportive manner to harmonise the regulatory framework for the financial sector and to strengthen its infrastructure.
In this context, and in conformity with international standards, the QCB has been moving towards risk-based regulation, expanding macro-prudential oversight, enhancing transparency, strengthening market infrastructure, and improving mechanisms for consumer and investor protection. The Financial Stability and Risk Control Committee, established by the new legislation, has been charged with identifying and assessing potential risks arising from financial services, and with recommending solutions to manage and mitigate such risks, thereby strengthening financial stability.
As for regulation, while Basel III guidelines have been issued to banks and they are in compliance, the QCB is making further enhancements to the macroprudential system. A Central Securities Depository was established in 2013 to take over the activities of the Central Registry Department at the Qatar Stock Exchange (QSE), and we are currently working on establishing a domestic credit rating agency. In September 2014, the QFCRA issued a consultation paper, “Proposed Banking Business Prudential Rules 2014”, inviting public comment regarding how to strengthen the prudential framework for financial institutions in line with Basel III principles. More recently, the establishment of Qatar as the region’s first renminbi clearing and settlement centre, together with the two-way line of currency swap agreement between the QCB and the People’s Bank of China, are expected to further boost trade and investment.
What sort of knock-on effects has the upgrade of Qatar’s capital markets to emerging market status had on trading activity on the QSE?
SHEIKH ABDULLA: Following the upgrade to emerging market status by MSCI and S&P, and the issuance of Law No. 9 allowing foreign ownership up to 49% for listed Qatari companies, the QSE recorded all-time highs by both traded volume and index in September 2014. Subsequently, the market corrected somewhat, largely reflecting global developments. Nonetheless, the upgrade, plus Qatar’s strong macroeconomic fundamentals and sound regulations, should improve its attractiveness as an investment destination.
As banks’ risk exposure continues to increase with the infrastructure agenda at hand, how important have capital requirements become for local lenders?
SHEIKH ABDULLA: Effective from January 2014, all national banks must comply with Basel III capital adequacy requirements. The minimum Tier 1 capital requirement including the capital conservation buffer is 10.5%, while the minimum total capital requirement with the buffer is 12.5%. National banks will also be evaluated on the extent to which they are domestic systemically important banks (D-SIBs) and, in a phased manner, will be required to maintain a D-SIB capital charge of 0.5% to 2.5% in different D-SIB buckets. One top bucket, at a 3.5% capital charge, is left vacant for future use. Additionally, national banks will be required to maintain capital requirements estimated internally under the Internal Capital Adequacy Assessment Process.
As of September 2014, national banks maintained average Tier 1 capital and capital adequacy ratios of 15.35% and 15.76%, respectively, while conventional banks had averages of 14.91% and 15.46%, and Islamic banks stood at 16.56% and 16.58%. Two banks have issued additional Tier 1 capital instruments as per the Basel III eligibility criteria. In case of increased exposure and additional capital requirements, banks may go in for such instruments as a method of funding.
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