Thanks to a combination of steady management and timely state assistance, Qatar's Islamic finance sector has seen off the worst of the global economic crisis and is now well positioned to take full advantage of the predicted surge in growth this year.
Along with the rest of the country's financial sector, the sharia-compliant component should continue to benefit from the government's continued economic stimulus programme throughout 2010, which will combine direct pump priming efforts with fiscal support for the banking services industry.
Through its massive injection of cash into the economy by way of $66bn in infrastructure projects, the government is helping to bolster activity in the construction and property sectors, both of which are central to many banks' portfolios.
These efforts to maintain activity are important for Qatar's Islamic lenders, and for the wider banking industry, both of which have strong exposure to the property market through loans or investments. Though analysts expect Qatar's real estate market will have a slow year, with some predictions that rental rates could ease 15% by the middle of 2010, before staging a recovery in the second half of the year.
Quite apart from the ramped-up spending programme, the government has also moved to shore up the banking sector, having committed to buying real estate valued at some $4bn as well as $1.8bn worth of other investments.
At the end of December, the national sovereign wealth fund the Qatar Investment Authority (QIA) paid $263m for a 5% stake in the Qatar Islamic Bank (QIB) to help lift the lender's capital levels and assist it in increasing loan activity in the coming year. The move took QIA's holding in the bank to 10%, with the fund also buying a 5% stake in the Qatar Islamic Investment Bank on December 31, paying $127m for 6.3m shares.
Though injections of state funding may give the impression of weakness in the banking sector, this is not the case in Qatar, with government support helping to facilitate further expansion, rather than shoring up past losses.
Another positive for Qatar's Islamic finance sector is its apparent low level of exposure to the debt problems of Dubai World or any of its affiliates. A report issued by Dubai-based investment bank and financial manager Shuaa Capital at the end of December said that Qatar seemed to be less affected than other countries in the Gulf Cooperation Council (GCC) bloc by Dubai's debt dilemmas. This was borne out by a statement issued by QIB that its exposure to a Dubai World Islamic bond maturing in 2017 was limited to $14.8m.
One of the newer players in the market has hit the ground running in the new year, with Barwa Bank, a fully owned subsidiary of Barwa Real Estate Company, announcing it was expanding through the acquisition of Qatari-based investment shareholding company The First Investor (TFI), with the sale having been given the green light by the Qatar Central Bank on January 17. According to a spokesman for the bank, the acquisition of TFI was a major step in the creation of a "universal Islamic banking group".
While Qatar is well served for most Islamic finance instruments, one vehicle has so far remained in second gear, with Islamic insurance, or takaful, only holding a 20% share of the total risk coverage market. This too however seems set to change, with QIB now looking to an expansion into the takaful sector, the lender holding talks with insurance giant Generali Worldwide and regional insurance broker Beema to form a joint venture.
According to QIB's chairman, Sheikh Jassim bin Hamad bin Jassim bin Jabr Al Thani, the bank is aiming to become a leading player on the international takaful stage, utilising QIB's extensive regional and global network.
"Our plans are to launch the takaful products in the GCC countries first, giving priority to our local and regional markets, and then place a particular focus on geographic areas that are relevant to takaful," he said in late December when announcing the plan.
Underpinned by state stimulus and anticipating strong growth, Qatar's Islamic finance sector appears to have the momentum behind it, along with the capital to make the most of the coming year, strengthening its position in its home market while looking further afield for opportunities.