By the end of 2011, the Qatari market will not have Islamic branches of commercial banks, as a result of the Decision of Qatar Central Bank (QCB) issued in February stipulating the complete closure of Islamic counters. QCB fixed a deadline for the commercial banks to liquidate their Islamic activities by the end of 2011 and thus, the Islamic banking services will be limited to the Islamic banks alone.
While some were hoping to extend this deadline, it was heard amidst the Qatari banks and on the famous banks street at the center of the Qatari Capital, known as Doha Wall Street, that some officials in the commercial banks are seeking to request a new deadline, in order to complete the process of closing the Islamic counters to handle the status of accounts, loans and workers of these branches. However, the confirmation of QCB that the deadline will not be extended at all, disappointed all these hopes.
An official source said to Zawya, to confirm beyond any doubt: the concerned banks were granted a period of 10 months to close their Islamic counters, and QCB believes that this period was sufficient to liquidate these branches. Therefore, there will be no extension to this deadline that ends on December 31st, 2011.
He added that if the deadline is extended, this may not be useful nor feasible for some banks, as their Islamic counters require substantial financial allocations, due to their operating expenses such as electricity, water and communications, as well as the workers' wages, while they are not achieving any revenue since last February after suspending their banking operations almost entirely, specifically with regard to receiving deposits and opening accounts. Furthermore, some of the buildings occupied by Islamic counters are not owned, but rather rented, by the banks and therefore, the extension will be a burden.
Some commercial banks, such as Doha Bank, incur monthly huge amounts of money exceeding QAR 100,000 (USD 34,600) for the rent of the buildings occupied by its Islamic branch. Therefore, Doha Bank was not among the banks that requested the extension of the deadline. This requirement was limited to only one bank, the Commercial Bank of Qatar, since it owns the buildings of its Islamic branch.
During the past few months, the Qatari banking market witnessed negotiations among several parties to sell Islamic counters of the commercial banks to Islamic banks, but to no avail, except the sale of the Islamic counter of Qatar International Islamic Bank, known as Al Yusr Islamic Banking service, to Barwa Bank, in a deal where the financial value was not revealed.
There were also information on other negotiations between the Islamic bank, Masraf Al Rayan and Qatar National Bank (QNB), whereby Al Rayan sought to purchase the Islamic counter of QNB, but the deal was not concluded because of disagreement regarding the purchase value.
Some Islamic banks achieved large profits as a result of this decision during the last period, particularly due to movement of some customers from the Islamic branches of commercial banks to the Islamic banks. For example, the profits of QNB Al-Islami increased during the first half of 2011, compared to the same period in 2010, where it rose by 140% to QAR 443.2 million, while the assets increased by 106% to QAR 29.2 billion, according to Chart 1.
Most of the commercial banks did not announce so far their clear solutions for the closure of their Islamic counters. They tend to apply several measures to implement the decision of QCB and commit to the deadline set by the latter.
Faced by this reality, the customers of Islamic counters will have only two options, either keep their accounts at the banks after converting the same to commercial accounts under the same financial obligations for the customer, or move their accounts electronically to the Islamic banks under new numbers.
Consequences on the Customers
According to a report issued by QCB, the persons in charge of the Islamic counters formed specialized work teams to contact customers to know their decisions concerning their accounts. As for the employees at the Islamic counters, they have very limited options, either they accept to be moved to the mother commercial banks, or much worse, resign.
The banks concerned by the decision of QCB and that have Islamic counters, are Doha Bank, the Commercial Bank of Qatar (CBQ), the International Bank of Qatar, (QNB), HSBC and Ahli Bank. Furthermore, the Qatari market contains ten other banks, including branches of Arab and international banks.
Profits and Concerns Perhaps such a decision reflected positively on the Islamic banks operating in Qatar, and these banks profited the most of it, according to the economic advisor and Head of Al Bayrak Studies Center, Bashir Kahlout, who believes that the absence of Islamic counters in commercial banks by 2012 will improve the performance of Islamic banks and help them reinforce their strengths and increase their profits.
Moreover, he noted that these banks will, most probably, not witness a big leap in their banking transactions immediately upon the removal of the Islamic counters, but the positive impacts will be significant and at various intervals.
Nidal Al Khawli, financial analyst at Nehme Investments in Doha, fears that this decision may reflect negatively on customers, when Islamic banks take charge alone - again- of the tasks of Islamic banking, as the existence of Islamic counters at commercial banks had formed, throughout the past years, a strong competitive pressure on these Islamic banks. He also expressed his concerns of a decline in the level of Islamic banking services in the Qatari market, due to the absence of Islamic counters.
Al Khawli stated that, in the past, before QCB allowed the commercial banks to open Islamic counters, the Islamic banks were suffering from routine and bureaucracy that was negatively reflected on their level of services and on the customers, who were obliged to deal with them as they had no other alternatives. However, after opening Islamic counters at the commercial banks, things were moved upside down and the concepts of Islamic banking were changed. The commercial banks contributed significantly in the development of Islamic banking services and automated them, so that the independent Islamic banks found themselves in an unenviable position and were forced to reconsider all their banking services and to introduce technology in their methods of providing these services, after they were relying on the old fashioned "paper and pen".
Al Khawli added that the decision gives again the opportunity to specialization and removes all suspicions, as some persons had suspicions regarding the work of the Islamic counters at the commercial banks, and wondered whether the Islamic banking and commercial banking were completely separated.
The economic advisor, Bashir Kahlout, believes that this decision represents a lifeline for some Islamic banks, as in case the situation had continued as it is, some Islamic banks in Qatar would have been obliged to declare bankruptcy in the coming period, or at the very least, they would have faced major financial crises.
Nasser Haidar, member of the Shura Council and Qatari businessman, believes that this was not a wise decision, pointing out that there are Islamic counters at several commercial banks and even at foreign banks in the GCC countries and other regional countries, and none of these have problems similar to those faced in Qatar.
The businessman, Abdul Rahman Al Meftah, disagrees with Haidar and sees that the decision of QCB is sound. It will enhance the particularity of Islamic banking in Qatar and lead to the elimination of any confusion between the Islamic banking and the commercial banking transactions, and thus remove any ambiguity or uncertainty among customers.