Capital plans: how Qatar's banks are shaping up

Ahli Bank chief executive Salah Murad says that despite competition and potential inflation, the Qatari banking sector is in rude health.
Capital plans: how Qatar's banks are shaping up
By Neil Halligan
Fri 25 Jul 2014 07:07 PM

Qatari banks and growth in profits go hand in hand these days. That’s hardly surprising, given the booming state of the economy, backed by a strong hydrocarbon sector.

Multi-billion-dollar projects are currently transforming Doha into a modern city that will rival the Middle East’s best.

Driving much of the development has been the award of the FIFA 2022 World Cup, which has led to an estimated infrastructure spend of $205bn between now and 2018, which country officials say will act as a springboard for further work planned for Qatar’s 2030 National Vision.

Moody’s latest outlook for Qatar’s banking system (published in June) remains stable, unchanged since 2010.

“The outlook reflects Moody’s expectation that Qatar’s strong economic environment will continue to sustain banks’ robust financial metrics — primarily strong earnings, sound capital buffers and low levels of non-performing loans (NPLs),” the report says.

Qatar’s real GDP growth accelerated to 6.2 percent in the first quarter of 2014 year-on-year, encouragingly driven by non-hydrocarbon growth in construction, financial services and trade, restaurants and hotels.

It’s no surprise, therefore, that banks in Qatar are enjoying record profits.

Ahli Bank is one of 18 banks operating in Qatar, and in a crowded marketplace, it believes it has found its niche.

Qatar’s seventh-largest lender by market value, the driving force behind its recent positive results is chief executive Salah Murad.

A knowledgeable banker, with 30 years of commercial banking experience in the Gulf region, Murad was reappointed as CEO (having had a previous stint in the same position) in January last year.

Setting out his agenda from the outset, Murad says he reorganised the business banking units to provide focus for driving revenues.

Offsetting any unpredicted events, he adds the bank has also created a gradual build up of capital and reserves.

As well as making large “investments in technology to give customers the modern platform for delivery”, he says the bank has a strong focus on the domestic market.

“Our strategy remains very much on domestic,” Murad says. “We have the population growth; we have to support our retail, for example, we need the businesses to support our corporate and our banking businesses.

“Our strategy is ‘let me dedicate my capital and liquidity towards supporting my local market’. There’s plenty there for me to do.”

The result has been an impressive set of figures, which show that Ahli Bank had increased their half-year profit by 11.8 percent to $83m (QR302.7m), up from $74.3m (QR 270.7m) over the same period last year.

Murad says they’re a reflection of the bank’s policies, which has placed it in the top three banks in Qatar.

“I think the story here that is rolling out is that we are consistent in our performance, a strong profit growth, and has continued to be 2013 and 2014 looks like, if it continues the same, then we should be closing the year on a positive note.

“I think, in terms of even net profit before provisions, annual profits before provision, all around sort of growth on ranking within Qatari banks, we’re in the top three I would say.”

He points to a strong loan growth a declining NPL ratio. “NPL ratio is probably one of lowest in the country,” he says.

“What distinguishes us is the return on equity, which is where we score the best all the time. So it’s not size, it’s return on equity.”

With so many operators serving a country with just 2 million people, Murad says the level of projects in Qatar means there’s enough business for all to go around.

“The projects that are planned or currently there is large and those players do need banks for support because they [projects] are very large.

“In terms of overcapacity, I’m not sure that the gap is that big, because the current and projected contracts that are going to come into swing to re-modernise Doha.

“I’m not just talking about the 2022, but all these projects that are core infrastructure that needs modernisation or need to be developed from the start.”

He adds that the size of marketplace is something that the bank has used to its advantage.

“I think Doha, for us because of its size, is a competitive advantage. Because of its size, we’re approachable, adaptable, we are better controlled, and we’re better focused. So size is number one.

“I think number two is that we have  good, motivated staff, because after all it’s a people business. We have a motivated management to do what’s required.”

Following on from its investment in technology and employee engagement and transforming its branches, the bank recently launched a new logo and corporate identity, which it says is designed to reflect the bank’s deep local roots and commitment.

“The main message is that we want to tell people first of all that we are at the heart of the community and we also want to tell people that we are a modern bank, with omni-channels.

“We have done internal training with our staff but we want to take it to the next stage of [taking it] into the market and introducing our new identity.”

A recent report on banking in the GCC showed that Qatar-based banks witnessed the highest increase in their loan book growth during the first quarter of 2014, growing by 23 percent year-on-year. Murad says it’s the one area that banks in the region are working on.

“Due to lots of regulations, banks around the region and around the world are more or less working on single products, which are loans,” he said.

“You can’t do the exotic things that used to be done in the past; that has all been taken away from banks, so yes I could see a trend there in terms of loan growth continuing, but the challenge is you need capital for it. So it’s a challenge.”

When it comes to project financing, Murad says there are plenty of risks involved, which has led to lots of caution among bankers.

“I think banks too carry a high risk when they do contractor financing, no doubt about it.

“The trick is to have the right structure with the right players. We skew towards the local contractors, who know their market better than the foreign contractors.

“Having said that, some banks in the past have got done on some of the contractor financing facilities, due to mispriced or project mismanagement from the contractors — all top names — and that has embedded with us, and [we] have told some ‘this is unavailable’.”

Another concern in the region is inflation, which Murad says comes down to two factors.

“There are two elements that could influence inflation in Qatar. One of them is from the outside, which is the food prices going up. This is uncontrollable, and I think Qatar is developing its own strategy in terms of food security.

“The second one is housing and the shortage of housing, and quality housing. It could be an influencing factor.

“But I guess this is just not in Qatar but of course in the Gulf.”

Murad says, however, that he has no immediate plans to invest in overseas lenders, as a number of other Qatari banks have done. Last year, Qatar National Bank (QNB) bought National Societe Generale Bank (NSGB) for $1.97bn and Commercial Bank of Qatar took a 70.8 percent stake in Turkey’s Alternatifbank. However, Qatar Islamic Bank’s attempt to take a slice of Turkey’s Bank Asya has recently fallen by the wayside.

“Why do I have to go outside when everything is going on around me? There is plenty there for me to do,” he says.

“Definitely at the moment, I’m 90-95 percent focused on Qatar. When we come to the right time, definitely there could be something there, but it has to be a Qatar-linked story and not just go outside and branch out.”

Should the right opportunity arise in Qatar, he says Ahli Bank would consider a possible merger or acquisition.

“We are opportunistic, so if there is anything that we could look into, we will consider it, definitely.

“We’re not going to just stay where we are. We will look at things if they come. Having said that, we didn’t get anything in front of us that was really worth looking into.”

In February last year Ahli United Bank (Bahrain) sold its 29.4 percent stake in Ahli Bank to the Qatar Foundation at a price of QR60 per share, for a total consideration of $615.9m.

Speaking about the implications of the deal, Murad says it will bring Ahli Bank to a whole new level.

“I think it certainly has opened up doors for us already, because of them being the strategic ownership in our bank, but also there has been a huge opportunity waiting for us, which we are already in discussion with them on how we could leverage on this, which should give us big benefits.

“Qatar Foundation is very big organisation and it will take the bank to a whole new level.”

Looking ahead to the rest of the year, Murad says they are working on a number of projects which he says will help the bank achieve its growth targets.

“I’m working on various major projects between here and the end of the year that could carry me forward. One of them is the new identity, and establishing it among the market.

“We are investing in our retail and the branch ambiance to make them modern and appealing.”

Technology acquisitions, technology platforms, delivery, decision-making, using technology, efficiency using technology is the other angle.

“Leverage on shareholders is number three and lastly I want to develop local talent. I think this is a long term investment for Ahli Bank,” he says.

Looking further down the line, he says the bank’s performance, like many in the region, will be linked to Qatar’s economy.

“My outlook is correlated to Qatar’s economy and Qatar’s economy is looking positive for the next five years. I think our performance is correlated to Qatar’s economy.”

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