Qatar has some way to go before catching up with other Islamic banking hotspots in the Middle East, but International Islamic is playing its part. Its CEO, Abdulbasit Al Shaibei, tells Robin Wigglesworth about their growth strategy domestically and internationally, and why consolidation in the Qatari banking sector is still some way off.
International Islamic recently rebranded from Qatar International Islamic Bank, and has swiftly felt the beneficial results, posting first quarter net profits of $28.8 million, up 114% over the corresponding period last year. This followed hot on the heels of 2005 net profits of $120.8 million, a record amount for the bank, and five times more than their 2004 results.
Standard & Poor's has called the Qatari banking sector's results "stellar", pointing to the "high economic and lending growth, ample liquidity and strong customer confidence" across the sector. Across Qatar, the Islamic banks have been catching up with their international brethren, and the sector's time has arrived fully on the peninsula.
What is behind your first quarter results?
We are still following our strategy to expand in our local Qatari market, and we have always believed that retail banking is our bread and butter, so we are building up our position with the consumer finance sector.
Besides that, we restructured our fee structure and generated more fee-based income, and did some advisory work in the first quarter of 2006. Overall, this has resulted in our operating income going up by almost 50% compared to the first quarter of 2005.
Where is your banking focus? Retail seems to be particularly lucrative for Islamic banks given the non-interest bearing account factor.
We have an active corporate division, but I believe that retail banking spreads your risks and the margins are quite high. Of course, we have to compete in the market, and all of our accounts are profit-sharing ones.
Our saving account has a return of almost 3%, and for a one year deposit it is nearly 5%, distributed quarterly. Customers are becoming increasingly sophisticated. They won't keep a single riyal in your bank if they don't get any return on it.
It was maybe different before, when there were only one or two Islamic banks in the market. Now conventional banks have opened Islamic subsidiaries, and if you don't give the customer something, eventually they will take their business elsewhere.
You went through quite a significant restructuring and rebranding period in 2005?
Our rebranding was meant to send a message to both potential and existing customers that we still have a commitment to the community and to our clients, in addition to maintaining our level of service. Many people are resistant to change, but it has worked very well, and our customers are now thinking it was a good idea.
You are expanding as well?
This year, we hope to open two new branches, but maybe five more, in addition to our large network of ATMs.
We also play a large role outside Qatar. We were the first Islamic bank to go to the UK, as we are a founder and major shareholder in the Islamic Bank of Britain, the first Islamic bank in Europe. Last week we obtained a license for an Islamic bank in Syria. We are a shareholder in Arcapita in Bahrain already, but we recently lost a bid for a bank in Egypt to Saradar-Audi. We are trying to set up an Islamic bank in Morocco, and are working with the authorities there, but nothing has materialised yet.
We take the lead as a bank, but we bring our investors and shareholders with us. We don't want to set up branches abroad. We set up a new bank were we take the lead and invest the seed money, but bring a lot of our investors with us. Domestically we go it alone, but abroad we want co-investors with us.
I have heard that you are also getting more active in Pakistan?
We are working on establishing a Takaful company now, and have already received a license to operate. Again, we provide the seed money, and encourage our Qatari investors to go with us. Establishing an Islamic insurance company was a different approach for us, but we have received approval for two companies, one for life Takaful and one for general Takaful.
Pakistan seems to be a very interesting market for Islamic banks in the Gulf. Are you thinking of establishing a banking subsidiary there at some point?
Frankly, we are thinking of it, but we have not taken any formal steps yet.
The Islamic Bank of Britain seems to have tremendous potential, as does the rest of Europe. Are you considering expanding elsewhere on the Continent?
We believe that it is better that the bank first establish a strong domestic position before it starts expanding outside its core market. Later, when it has grown, it can go to other European markets.
How closely do you work with the Islamic Bank of Britain?
One of our management team sits on the board of directors of the bank, but they are completely separate entities, so we don't interfere with the management of the bank. However, if they require any assistance or advice, we can help them
Most Islamic banks seem to be in a process of expansion, but it seems that, many Shari'ah compliant institutions are having problems getting suitably experienced staff?
Frankly, the entire region is growing immensely in all sectors, so finding good people is difficult, and Islamic banking adds another layer of complexity to this. Many banks are expanding and being established, and they all want high-quality staff. It's true, finding suitable staff for Islamic banks can prove problematic. However, our role is to educate newcomers to the sector, and I believe that if you have a solid grounding and knowledge of banking, it is easy to absorb the concepts of Shari'ah compliant finance and banking. If you are a good pilot, you can upgrade from one aircraft to another and still fly.
What is the Qatari banking sector like?
We have almost 15 banks, and many people are talking about mergers, and I think that Qatari banks realize that they are quite small. So they have decided to increase their capital by keeping more reserves on the balance sheet by issuing more shares. For the past four years, we have been increasing our capital, either by issuing bonus shares, or by issuing share rights.
This trend helps banks. Mergers are an alternative, but I don't think banks in Qatar want to do this. They would rather inject fresh capital by introducing more shares. For example, at the end of 2005, the total equity of our bank was almost $101.6 million. By June, when we are planning to issue some share rights, the equity of the bank will $384.5 million. This is the right time for the bank to become bigger.
And what shape is the Islamic banking sector in?
The Islamic banking sector is growing strongly. In 2005, most of the conventional banks opened Islamic subsidiaries. I believe they are doing well, but frankly, we haven't felt the competition yet. As a matter of fact, our operations are growing quite healthily. This means that if more Islamic banks are set up, are taking a market share from the conventional banks. But the competition inevitably will be felt, and will force the existing Islamic banks to become more innovative and service-oriented, and therefore strengthen the Islamic sector further.
So the Islamic banks are taking market share from the conventional banks, even their own parent company?
Exactly. Many of the customers of the new Islamic windows are existing customers that are converting from conventional accounts to Shari'ah compliant accounts.
What advantages does a fully Islamic bank have compared to a subsidiary or window?
We have the know-how, and many of the subsidiaries are not executing and implementing all Islamic services and products, and don't really offer full-services Islamic banking.
Do Islamic banks offer as full a suite of products as the conventional banks?
If you look over the past few years you can see how quickly Islamic products have developed. The Shari'ah scholars have learned a lot, so I believe that any conventional product can be tuned to match Shari'ah principles and demands. Apart from derivatives, we can now deliver all products in some way.
Are there enough Shari'ah scholars to go around? I have heard they are very overworked.
The language barrier is often a problem. We have many Shari'ah scholars, but we only have a few who are fully fluent in English. We have five on our board, all well-reputed internationally.
Sitting on multiple boards isn't a large issue, and is often even an advantage. If a scholar sits on the board of seven banks, he can deliver the best of each bank, and learn from each other all the time. This sharing of experience and knowledge can make the job a lot easier for a chief executive, because if I raise an issue with them, they know many ways to resolve it.
Do the Islamic banks work closely together then?
We do, especially if we have the same Shari'ah board. For example, we have the same Shari'ah board as Qatar Islamic Bank. However, there is definitely competition between us. A healthy state of affairs.
We try to differentiate ourselves by being the best bank in Qatar by providing the best services to our customers, in terms of IT, human resources, location of our branches and so on.
How is the Qatar Financial Centre (QFC) doing?
It will attract more banks to Qatar, and encourage them to open offices here. It is useful to have a local presence so you can be close to the action. There are many big projects in Qatar now, in particular some related to infrastructure, oil and gas, and this encourages the big international banks to set up an office here, even if it is only a one-person operation in the QFC.
Do you work closely with the central bank?
Yes, very closely. They are tough on us, but we appreciate their advice, and follow their guidelines and rules 100%.
© Banker Middle East 2006
