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Quality in Qatar, Barwa by design

May 2011

Barwa Bank is the newest Shari'ah-compliant financial institution in Qatar. Chief Executive Officer Steve Troop told Robin Amlôt about his plans to build the bank...
Established with an authorised capital of QAR 2.5 billion ($690 million), Barwa Bank was incorporated in 2009 and soft-launched operations in October 2009 from its headquarters on Doha's Grand Hamad Street ('bank street'). Barwa Bank is licensed and regulated by the Qatar Central Bank ( QCB ) and began life as a fully-owned subsidiary of BARWA Real Estate Co.

At launch, the bank also revealed it had been appointed as Mandated Lead Arranger by Qatari Diar Real Estate Investment Company ( Qatari Diar ) to provide QAR 500 million ($137 million) as part of a QAR 4 billion ($1.1 billion) Shari'ah-compliant syndicated facility to help finance European investments. Barwa Bank has continued to work with Qatari Diar - in April 2011 the bank's investment banking subsidiary The First Investor ( TFI ) arranged $700 million in financing for the firm's prestigious CityCenterDC development in Washington DC. TFI itself had been acquired by Barwa Bank in December 2009. The deal was described by Barwa at the time as 'a major step in the creation of a "Universal Islamic Banking Group" headquartered in Doha'.

Barwa Bank has already picked up a clutch of awards, among them Best Retail Marketing Campaign for its '1-1-1' personal and car finance campaign at the Banker Middle East Product Awards 2010, Best New Bank at the Banker Middle East Industry Awards 2010 and Best New Retail Financial Product at the Banker Middle East Product Awards 2011.

Steve Troop joined Barwa Bank as Chief Executive Officer in September 2010. Robin Amlôt met him in Doha to discuss the bank's achievements so far and its plans for the future, asking him what he would identify as Barwa Bank 's key strengths.

"We are a small organisation which means we have a very flat hierarchy and are able to make decisions quickly. We have already generated a number of significant pieces of business through our ability to respond quickly to customer requests. I would add that we have also not done a number of pieces of business because of our ability to respond quickly. We believe that the quick 'No' is better than the slow 'Maybe'.

"Secondly, we come to the game afresh. We have none of the legacy issues on our balance sheet associated with recent history. We have abundant capital that we are keen to deploy. We have been able to do what I would call conservatively aggressive business. We are able to write business on our terms at attractive prices to us because there is an absence of capacity in certain parts of the market place.

"Another advantage would be our relationship with the BARWA group. However, we haven't been a subsidiary for some time. We are now an associate of the group. We retain a strong relationship with them and that provides market intelligence and contacts through which we have been able to develop business."

What plans do you have to launch new products and what areas would they be in?

"I am always sceptical when people ask me about products because banks really have only two products: we either take money from people or we lend it to them: anything else is wrapping and packaging.

"We prefer to think in terms of customer propositions and are about to launch our upscale offering, Barwa Prestige, focussing on the mass affluent up to and including people who would qualify for private banking. We are also looking at doing something in the youth market - demographics are part of 'Marketing 101'. Even though we are a small bank we have to be very, very conscious of capturing this demographic profile in the context of building the business.

"And as we move through the year, we will be looking to build out our wealth management capability both through our ability to generate and create investment opportunities through TFI and our ability to 'in-source' and to act as a manager-of-managers."

How is the bank differentiating itself in home finance?

"We have got probably the most transparent product in the Qatari market place. Our product was the first to be QCB rate-linked with automatic re-pricing. We have tried to demystify the mortgage process and demystify home ownership. Our online home finance portal takes people through a number of different aspects of buying a home. I think we are probably also at the longer end of the range in terms of willingness to lend over a period. So I suppose our three key differentiators are provision of information, transparency and tenor."

What's your position on Takaful and BancaTakaful?

"We're all in favour of it! Insurance in a banking context is something I am familiar with. Takaful has got some way to go. There is still a body of opinion within the Islamic world that sees insurance as in some way Haram and unacceptable. I think any provider of insurance needs to work at explaining how insurance is acceptable in an Islamic context. As for BancaTakaful; bancassurance is a proven distribution channel around the world, a bank offering auto finance has an opportunity to pitch for car insurance, offering mortgages - there's an opportunity there for life cover, home and contents, etc."

What progress are you making on taking Barwa Bank public?

"What we are planning is a listing by way of introduction. We have abundant capital but we do wish to be a listed company. Partly that's to do with our acquisition of First Finance Company in 2010. First Finance was a quoted company. Shareholders exchanged their publicly-quoted equity for Barwa's private paper. There was always an understanding that we would put some liquidity back into their paper by taking the company public.

"We think we have an interesting story, we think the Barwa Bank story is one that should be public. We are now engaged with the regulatory authorities in getting relevant approvals. It is a 2011 event; it should happen this year."

What are your views on the trends for Islamic bonds?

"From a liquidity management perspective we don't have anything like the same level of opportunity or breadth of offering available to us that the conventional banks do. Obviously as a bank we are required to maintain certain levels of liquidity. We do that through the interbank market, through cash deposits with the QCB or through cash holdings physically in our vaults. We would love to be able to enhance short-term yields on liquid instruments.

"We could issue instruments ourselves but that wouldn't help us manage our own liquidity! The issue is related to the establishment of a capital market in Qatar, one of the QCB 's objectives. You need end-investors to buy and trade, you need instruments and you need corporates willing to raise money in this way. In Qatar right now corporates tend to be committed more to using bank debt. However, we do have very deep investor pools in this part of the world and there is nothing to stop international issuers with strong brand names and strong brand recognition from issuing Sukuk, as indeed GE did not so long ago."

What's the likely impact of the World Cup for Barwa Bank?

I think in many ways the World Cup was the cherry on the top of the chocolate sundae. It was that last little push around a whole suite of very significant and ambitious infrastructure projects that were going to happen anyway. In many ways, the successful bid has done exactly what it set out to do which is to leverage global understanding and recognition of and for the Qatar brand.

"Like all the banks we will benefit from financing around that infrastructure, whether it is getting involved at the top end, whether it is involved with contractors, subcontractors, sub-subcontractors. It is replete with opportunity!"

In February 2011 Barwa Bank signed a deal with the Qatar Development Bank covering the Al Dhameen loan assurance programme for SME financing - how active is Barwa Bank in the SME sector?

"The further down you go in terms of company size the more you are dealing with owner/managers; by definition their decision-making processes are more immediate, more personal and more value-driven than classic corporate selection and procurement policies. There is a greater level of positive selection in favour of Shari'ah-compliant financing in the SME space than there is in the corporate space.

"However, we lead with the service component of a proposition that happens to be Shari'ah-compliant. Some institutions work the other way round and there is a real danger of thinking you can then get away with a second rate proposition. I think we see that happen. On occasion, I sense an unspoken quid pro quo in which customers choose Islamic banking as an act of conscience and thus have to put up with a second-rate service. This is something we are very keen to break!"

How important is the SME sector?

"We have tended, in the region, to have bi-polar economies with massive family conglomerates and state entities on the one hand and mom-and-pop shops on the other with not much in between. Promoting and developing businesses in the middle boosts economic activity, creates jobs, promotes entrepreneurship and gives a sense of empowerment and engagement with society.

"I think we have to acknowledge that there is very significant gradation within the SME space: there are SMEs knocking on the doors of being described as genuine corporates all the way down to the mom and pop shops. The business is not monolithic, it is genuinely segmented and we have different approaches. It is potentially a rewarding space for banks in which to operate. SMEs overall are invariably net creditors to the banking system. Their needs are for speed, efficiency and quality of service, cash management, the ability to show accounts electronically and quickly and to allow them to do things quickly. Large tranches of SME banking activity do not involve credit at all: it is service-based, fee generating and very rich in terms of returns."

You were recently involved in funding Qatari Diar 's Washington DC project. What are the bank's international ambitions?

"Investments like the Qatari Diar deal are opportunistic - in the sense of taking an opportunity to support our customers. Qatari Diar is a customer that wanted to do the deal, with us wrapping our expertise around the deal for them.

"In terms of international ambition there will come a point where we will interested in taking an established business model to different parts of the world. However, at this time we have lots to do domestically and we certainly wouldn't want to rush our fences. It is about taking a proven investment model, a proven business model into an environment where we think we could make it work. Self-evidently, given that we are a Shari'ah-compliant organisation it would be focussed on countries and regions with a critical mass of Muslims and there are obvious places where that might be.

In the domestic Qatari market do you see the QCB 's ruling on Islamic windows as an opportunity or challenge?

"The directive, from our perspective, is overwhelmingly positive. We go from a position where we competed for Shari'ah-compliant business with nine other providers (six windows and three other Islamic banks) to a universe that consists of just four Islamic banks in total. So we see a sharp reduction in the number of competitors.

"Secondly, it's a sharp reduction in competition in a market that continues to grow more quickly than the conventional space, Shari'ah-compliant deposits and finance are growing faster than their conventional equivalents. Less competition in a growing market must be hugely positive.

"Does that provide the opportunity for us to acquire a business? Of course, the answer is yes. Clearly, it would be inappropriate to say too much but we are in conversations about the extent to which it would make sense for us to perhaps take on a business: assets, liabilities, networks, customers, etc."

© Banker Middle East 2011