Local bankers have had a lot to smile about as the results season has brought a string of announcements regarding record profits. On February 20 it was Commercialbank's turn in the spotlight as Chairman Khalifa Abdullah Khalifa al-Attiyah told the press that net profits for 2004 stood at QR326.7m ($89.5m).
This follows news in previous weeks of other notable successes. Net profits at Doha Bank increased by QR157.7m ($43.3m) in 2004, a 73.5% increase over the previous year prompting the bank's board of directors to recommended a bonus share issue giving shareholders the equivalent of 70% of the value of their current nominal holdings. The move would increase the bank's capital from QR407.9m ($112.1m) to QR693.4m ($190.6m).
In a similar vein, Commercialbank announced that it would recommend a bonus issue of 40% to the Annual General Assembly meeting scheduled for March 23, thus increasing capital to QR747.5m ($205.4m).
Doha Bank and Commercialbank rank second and third respectively in terms of assets after national giant Qatar National Bank. The formula for success has been a continuation of their focus on the high margins in retail services, which have made them aggressively seek to bring in more business.
"Our strength is on the retail side," explained Rahavan Seetharaman, general manager of Doha Bank, when speaking to OBG recently. "We have a better margin on retail banking than any other parts of the commercial banking side, whether corporate services or syndication activity. The retail gives us a high yield on margin so we have opened new branches and introduced many new products and incentives both on the liabilities and assets side."
"Strategies aimed at winning more market share as well as a greater share of individual wallets have been successfully pursued, across all our lines of business," explained Commercialbank's managing director, Hussain Ibrahim al-Fardan, to the February 20 press conference. "At the same time, the bank is continuously developing a broader range of financial capabilities to serve an increasingly sophisticated market demand."
The margins may endure for some time to come it seems, meaning the local banks will continue to drive growth in retail activity. Technological innovation has been a leading component of the strategy and has led to the introduction of numerous new products aimed at Qatari nationals and expatriates.
E-banking and wealth management products have been vital alongside a variety of other value-added services, including SMS-banking and lifestyle products. Diversification of services has also been a feature of the banks' attempts to become comprehensive financial service providers.
"We offer bank assurance now," explained Seetharaman. "We go through multiple insurance companies including all the local companies; where we can't find local products we go to international markets. It covers traditional lines and Islamic products, but basically we are trying to create a one-stop financial service."
However, with all this focus on the retail side of income there are concerns that the locals will not be in a position to take advantage of other opportunities in project finance and syndication that will come about as investment continues to flow in the peninsula state.
The continually low rates on loans may mean the high margins on retail endure, adding concern that there is no incentive to invest in diversifying.
"Those doing retail here have benefited a lot from the increased margin between deposits and loans," explained Abdulla bin Khalid al-Attiya, governor of the Qatar Central Bank (QCB) when speaking to OBG recently. "When loans rates go down, they go down little-by-little, but the base rate goes down more quickly because maturity is very short; loans are over a longer maturity."
However, some see the impending arrival of more international banks and the announcement of the Qatar International Business and Financial Centre as a positive stimulus.
"There are market forces, new players, new cost structures and erosions of margin," says Seetharaman. "Strategically you have to redefine your business model and get on with proper asset allocation and balanced risk management. Particularly when the capital market is getting hot you have to be careful of what sectoral distribution you have; you need balanced distribution so you keep pace with the overall expansion and balance your risk in proportion to that."
Meanwhile, the QCB is keen to see internationals become involved.
"We welcome new institutions," says al-Attiya. "We expect more to come here and operate under local licences with priority given to the GCC banks. It's a positive trend as it will enlarge the market, bring more competition, bring new technology and new know-how to the system."
Yet recent figures shows that local banks are able to remain competitive.
"In our experience the local banks' market share has grown at the expense of foreign banks that operate here," continues al-Attiya. "Ten years ago, foreign banks had about 20-22% of local deposits, now they only have 17%, so on the commercial side the national banks have become more important."
As opportunities in Qatar grow, pressure from outsiders to be allowed a slice of the pie is mounting. Meanwhile as the indicators soar and activity hots up, so does the need for careful supervision and control; protecting the locals will mean making sure they take full advantage of all the opportunities in Qatar.