IFN REPORTS
New caps for Qatar as regulator tightens control
The news this week that the Qatar
Central Bank (QCB) will tighten
its controls on banks’ investment
activities and limit exposure in certain
asset classes came as a surprise to the
industry, and may cause more than a
few ripples as banks struggle to reduce
exposure in line with the new caps.
And according to some reports, Islamic
banks may be among those most
affected.
The circular released this week
reportedly reduces limits on equity and
debt investments from 30% to 25% of
capital reserves (although government
and national bank debt instruments
are exempt), while new curbs will be
imposed on investment in individual
companies and unlisted securities; and
investment in securities outside Qatar
will be capped at 15%. Specifically for
Islamic banks, investment in real estate
will be restricted to 10% from its current
30%.
Amjad Hussein, a partner at K&L
Gates in Doha, explained to Islamic
Finance news that: “The central bank’s
circular… is another example of how
the regulator in Qatar is keen to ensure
that the financial services sector in Qatar
is carefully regulated. QCB wants to
ensure that, at a time of excess liquidity;
banks maintain a balanced and diverse
book of assets and reduce the risk of
over-exposure to any particular type of
assets.”
Although no timeframe or justification
for the move has been provided by the
regulator, it is thought to be driven by a
desire to free up funding to finance the
multi-billion dollars-worth of upcoming
infrastructure projects in the country
by ensuring banks have enough cash
to pump into the growing government
debt market.
Amjad confirms that: “It is difficult to
second guess the regulator but I think
part of the reason behind this ruling is
to ensure that local banks are able to
support the state-backed project and
infrastructure program which forms a
key part of the Qatar 2030 Vision and
is required for the FIFA World Cup in
2022.”
Islamic banks
are likely to
be the ones most
affected, as Shariah
compliance prevents
them from investing
in conventional debt
issuance
Not all Qatar banks will be affected
as some have not yet reached the
limits. However Philip Smith, a senior
director at Fitch Ratings, told Islamic
Finance news that: “Islamic banks are
likely to be the ones most affected, as
Shariah compliance prevents them from
investing in conventional debt issuance
(and the availability of Sukuk is still
limited) so they tend to hold higher
volumes of equity and real estate.”
Amjad agrees, confirming that:
“Qatar Islamic Bank (QIB) and Qatar
International Islamic Bank (QIIB) are
likely to be impacted by the new caps.
The former is due to its exposure to
equity and debt securities and the latter
due its exposure to real estate. It will be
interesting to see what strategies these
banks will put into place to reduce their
exposures to these asset classes and
what grace period will be granted to
them from the QCB to meet these new
requirements.”
QIB has a reported 32% of capital in
equity and debt securities and 19% in
unlisted securities, placing both of these
categories above the new limits; while
QIIB has a reported property investment
ratio of 29%, requiring a reduction of
19% to comply with the new rules.
However despite coming as a surprise
the move is not necessarily unwelcome,
and may aid banks in diversifying risk
and reducing exposure.
“From a risk point of view it sounds
positive as we tend to be rather wary of
high levels of investment in equities and
real estate due to the inherent market
risk,” confirms Smith. “But I don’t know
if the QCB has introduced these new
guidelines to control their risk profile or
for some other reason.” — LM
Malaysian Islamic stocks: Appeal rises while offerings drop
following upcoming guideline revision
In view of the current development and
sophistication of the Islamic finance
industry, the Securities Commission of
Malaysia has announced its decision
to revise the requirements for listing
Shariah compliant stocks on the
Malaysian stock exchange. Scheduled
to be released on the 29th November
2013, the move was also prompted
by the Malaysian International
Islamic Finance Center’s initiative to
internalize Islamic finance in an effort
to enhance cross-border activities.
©
It is expected that the revision will
increase the attractiveness of the
Malaysian bourse’s Islamic offerings
as the revised Shariah screening
methodology would be more in line
with other established Shariah screening
procedures, said Jamaluddin Nor
Mohamad, the director of Islamic and
alternative markets at Bursa Malaysia,
when speaking to Islamic Finance news.
In the exclusive interview, Jamaluddin
also revealed that while Bursa does
17
not currently know how many present
Shariah compliant securities would be
reclassified as non-Shariah compliant,
Bursa expects the number of Islamic
stocks to drop.
Emphasizing that performance is the
key factor in investment decisions for
both Muslim and non-Muslim investors,
he also affirmed the belief that investor
interest would not be significantly
affected. — VT
19th June 2013