Interview: Bassel Gamal
What trends do you see in the Islamic banking industry in terms of both organic and inorganic growth?
BASSEL GAMAL: The global Islamic finance market is growing rapidly, having increased by double-digit rates to $2.7trn in assets and a roughly 6% share of all banking assets. A few years ago Islamic banks realised that having an Islamic licence was not enough to succeed; they also needed to build a high-performing, competitive bank. This was a pivotal point in the evolution of the industry.
When banking products were commoditised, customers wanted competitive pricing, good customer service and convenience. Today, they are still looking for these things, but tech-savvy customers are placing the utmost importance on the digital value proposition. Therefore, it is important for Islamic banks to continue innovating and investing in new technologies to keep up with changing customer expectations.
When it comes to international expansion into more mature markets, while the mode of entry may vary, the fundamentals of success remain the same: creating real value for customers. Naturally, succeeding in a new market is more difficult because of competition from well-established players. In the case of a greenfield expansion, one possible approach it is to find a niche where you can create real value for a specific customer segment, or establish an advantage in a specific product or service. If an acquisition route is chosen, proper due diligence, a reasonable price, a realistic business plan and attention to its implementation are key factors to achieve meaningful returns for shareholders.
Which specific challenges do Islamic banks face in adapting to growing demand for adherence to environment, social and governance (ESG) principles?
GAMAL: As ESG concerns grow, banks are being encouraged to integrate sustainability across all their operations. The Covid-19 pandemic has underscored the interdependency of people, societies and nations, and highlighted the need to protect the environment.
Qatar is a global centre for Islamic finance, with Islamic financial assets representing 28% of the domestic total and 32% of all deposits as of end-2021. With the renewed focus on ESG and the October 2021 launch of the National Climate Change Action Plan 2030, Qatar has the opportunity to position itself as a sustainable finance leader in the region by promoting the natural synergies between Islamic and sustainable finance.
QIB recently formulated its long-term sustainability strategy, aligned with the objectives of Qatar National Vision 2030, the sustainability criteria developed by the Qatar Stock Exchange and the UN Sustainable Development Goals. With these frameworks as a guide, important elements of our strategy include how to enhance the consideration of sustainability criteria in our financing activities, support for local communities and initiatives to reduce our environmental impact.
How are regional business conditions evolving?
GAMAL: Uncertainty describes most of the last 24 months. However, all GCC economies are now recovering from the pandemic thanks to higher oil prices, supportive public spending and improving business conditions. Firms are experiencing a gradual recovery, with only certain sectors still under pressure, such as aviation and hospitality. Consumers are also returning to their pre-pandemic spending patterns and behaviour.
Banks in our region have weathered the crisis well due to their strong capitalisation, low cost structures and government support for affected sectors. As future growth remains dependent on public spending and oil prices, anticipated interest rate hikes will further support earnings. On the downside, however, the risk of an uncontrolled resurgence of the pandemic – which would slow the pace of economic recovery – is still a possibility, and the full impact of the recent difficulties in the real economy on asset quality remains to be seen. The medium- to long-term consequences of Russia’s invasion of Ukraine add another layer of uncertainty.
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