2016 was certainly a memorable and strategically important year for Qatar. The Qatari economy has had to go through a paradigm shift and embrace diversification in a manner and pace that were never imagined. The era of dependency on natural resources looks to be a thing of the past and the move into a more expanded and integrated private sector has been a key priority.
Many entities (in both the public and private sectors) have gone through the difficult task of restructuring their business operations in line of with the changes and downturn in the Qatari market. Unfortunately, the banking sector has not been exempt from the effects of this slowdown and some financial institutions have had to make difficult decisions over the past year.
Nevertheless, the banking sector has maintained a strong performance overall. Overall net profit for the banking sector increased by 1.4% for the last year, which was the result of higher net interest/profit income by QAR4.3 billion (US$1.18 billion) and higher net fee and commission income by QAR962 million (US$263.93 million). However, share prices of the listed banks have had a turbulent year.
Islamic banks (both listed and non-listed) fell within that trend and, despite experiencing a rollercoaster year, maintained a strong performance.
Review of 2016
This year has seen a number of important transactions completed by the Islamic banks in Qatar, from the listing of the Qatar First Bank to the issuance of Sukuk instruments.
Listing of QFB
The listing of Qatar First Bank (QFB) on the Qatar Stock Exchange marked a major step in the right direction for the Qatari market and has set a precedent for what is yet to come in Qatar. The listing of QFB took place on the 27th April 2016, marking the bank as the 44th listed company on the Qatar Stock Exchange. However, the greater importance and significance of this listing is that it is the first-ever listing of a company registered in the Qatar Financial Center (QFC) and it is anticipated that more QFC-registered companies will follow in QFB’s footsteps. This brings together the Qatar Central Bank and QFC regimes in a way that is only going to benefit the local economy.
QFB was established on the 4th September 2008. The bank’s authorized share capital of QAR2.5 billion (US$685.9 million) and paid-up capital of QAR2 billion (US$548.72 million) divided into 200 million shares have all been listed and are now publicly traded on the Qatar Stock Exchange. The listing share price was QAR15 (US$4.12) per share and the share price has now settled at QAR13.85 (US$3.8) with the bank’s market capitalization now reaching QAR2.7 billion (US$740.77 million).
Transactions
Qatar Islamic Bank announced on the 1st September that it raised QAR2 billion in a Basel III compliant additional Tier 1 perpetual Sukuk to enhance its capital adequacy ratios and to support its future business growth.
Additionally, Qatar International Islamic Bank (QIIB) announced in August 2016 that it raised QAR1 billion (US$274.36 million) through a local Sukuk issuance. In its announcement, QIIB reported that this was its first issue with capital-boosting tools in compliance with Basel III and that the Sukuk facility was issued within the first tranche of its capital boost as part of QIIB’s interim and strategic plans.
Elsewhere, Qatar National Bank (QNB) Group completed two bond issuances during the course of the year. The first was a QAR10 billion (US$2.74 billion) in additional Tier 1 perpetual capital notes by way of private placement, to strengthen the group’s capital adequacy ratios and to support future growth across the QNB Group in accordance with group’s strategy. The second was a US$1 billion tranche under its euro medium-term note program in the international capital markets.
Additionally, QNB Group also completed the acquisition of a 99.81% stake in Finansbank in Turkey to extend its international presence and will be able to increasingly benefit from the rapid development of trade and strengthening of economic ties between Turkey and the Middle East in general, as well as between Qatar and Turkey in particular.
QInvest recently announced the acquisition of ERGO Portfoy, one of the largest and fastest-growing asset management companies in Turkey. Following the completion of this acquisition, QInvest Asset Management will have assets under management close to US$1 billion.
Preview of 2017
2017 will be an important year in Qatar as the state continues to expedite its transition from a hydrocarbon-based economy to a more balanced business environment. Initiatives like the establishment of three new economic zones under the supervision of Manateq are key in this diversification strategy.
The government of the State of Qatar announced that a number of listings will take place during the course of 2017, which will be closely monitored by investors and entities looking to list. In particular, it is expected that the first two exchange-traded funds (ETFs) will be listed soon, including a Shariah compliant ETF managed by Al Rayan Investments (a subsidiary of Masraf Al Rayan).
The recent global political developments (particularly Brexit and the election of a new administration in the US) will undoubtedly have an impact on the Islamic banking and finance sector globally and in Qatar. Players within this sector will monitor what the appetite will be for Shariah compliant investments and instruments in Europe, the UK and the US in light of these events.
Conclusion
In summary, the path of transformation of the Qatari market is on course and Islamic banks form an integral part of this journey. It is hoped that the banks will continue to grow during these tough times and assist in the diversification of the local economy.
Amjad Hussain is a partner at K&L Gates. He can be contacted at [email protected].