Qatar's strong banking performance reflects healthy macro-economic conditions, solid financial metrics and strong economic growth. "Another reason for the strong performance in the banking sector is due to the fact that banks in Qatar act as a conduit in the absence of a well-developed capital market," Tariq al-Malki, chairman of Al Khaliji bank told OBG.
An additional factor for the current success is Qatar's unparalleled economic growth. The World Bank recently placed Qatar amongst the wealthiest countries in the world. Achieving a nominal GDP growth rate of 24.2% in 2006 meant the country's GDP per capita level has reached $62,914.
While these figures contribute to strong performance across the sector, new entrants to the market are leading to increased competition. In 2006, Al Rayyan Bank joined the playing field with a $1.1bn initial public offering (IPO), with over 750,000 investors from all across the Gulf region. The Islamic commercial bank has a capital of over $2bn.
The increased presence of the foreign banks in the market is another reason why the banking sector is becoming highly competitive and challenging. This trend is set to continue as the QFC attracts more international financial institutions. US investment bankers, Lehman Brothers, is the latest in an expanding list of well known international institutions to join the on shore financial centre. They won a licence on April 5, and more international names are said to follow.
Stuart Pearce, chief executive of QFC told OBG, "We have no numerical ceiling on the amount of firms we want to attract."
One part of the sector that is enjoying increased prominence is Islamic finance. In fact, the appetite for Islamic offerings is not only being witnessed in the GCC, global demand for Islamic finance is expected to grow from $400bn to $4trn within the next five years. This increase is expected as Islamic banking institutions work to satisfy investor appetite for new banking products and services, Standard & Poor's announced in late April.
This potential for growth has encouraged many Qatari banks to offer Islamic banking products along with their conventional services. In 2005, the three major Qatari banks, Qatar National Bank, Doha Bank and Commercial Bank, ventured into Islamic banking. In 2006, Ahli Bank joined the wave, offering its own Islamic banking operations.
Six of the principal banks in Qatar are now in the Islamic banking market. According to Global Investment House, which produced the Qatar Economic & Strategic Outlook, established Islamic banks will continue to dominate the segment. This will result in further competition between the banks to capture some market share of the growing Islamic business.
Salah Mohammed Jaidah, chief executive of Qatar Islamic Bank, told OBG, "Some of the conventional banks have opened Islamic windows, which is great for Islamic banking because it even further convinces the customer of its benefits. But in the end, the customer will look for a full-fledged Islamic bank that is a pioneer in the sector."
Considering the challenging times ahead for the sector, the financial strength of each bank will play an important role. Moody's, which performs financial research and analysis on commercial and government entities, has refined its joint default analysis (JDA) on three Qatari banks. The banks are QNB, Commercial-bank and Doha bank; their updated ratings with all carry a "stable" outlook.