QATAR: Three Qatari banks deciding to merge could give the region the Islamic ‘megabank’ the industry has for years tried to create to no avail, and increase the prospects for larger Islamic syndicated deals and project finance to boost the US$2 trillion Shariah finance sector.
Masraf Al Rayan (MAR), Barwa Bank and International Bank of Qatar (IBQ) are currently performing due diligence on a possible tripartite merger which would result in the largest Islamic bank in Qatar with assets of QAR173 billion (US$47.47 billion), displacing incumbent Qatar Islamic Bank, and propel the merged entity as the largest bank in the State after Qatar National Bank (QNB). This potential shakeup is viewed positively by analysts as it would relieve the pressures on asset yields and profitability as well as mitigate risks.
“The merged entity between MAR, Barwa and IBQ would help to rebalance the Qatari banking sector,” explains Nitish Bhojnagarwala, an assistant vice-president at Moody’s. “Currently in Qatar, 18 banks serve a population of only 2.6 million, and QNB – the largest bank in the GCC – dominates with a market share of more than 40% of domestic assets.” Depending on the strategy of the new entity, which may diverge from the current direction of each individual participating bank, the amalgamation is likely to give it the economies of scale to better compete and add to the country’s efforts to raise public awareness of Shariah compliant finance.
If executed, the consolidation would also give the Qatari entity an edge in regional Islamic banking standings: overtaking the likes of QIB and Abu Dhabi Islamic Bank to become the GCC’s fourth-largest Shariah bank by assets. This could help the new entity to win larger mandates previously out of reach for the respective individual banks.
What is also interesting is the diverse business profiles of MAR, Barwa and IBQ which would work in the favor of both the merged entity in helping it build a stronger business proposition, and consumers as they would benefit from a wider range of products and expertise under one roof.
“Masraf Al Rayan has a strong relationship with the Qatari government, with loans to the government and public sector entities representing around 50% of its financing book. Barwa has a solid consumer and corporate business and IBQ is a niche player in private banking,” noted Bhojnagarwala.