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Thu 4 Aug 2011 10:33 AM

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UAE’s ADIB gets green light to operate in Qatar

Move comes after Gulf state barred mainstream lenders from offering Islamic products

UAE’s ADIB gets green light to operate in Qatar
Qatar has barred mainstream lenders from offering Islamic products

Abu Dhabi Islamic Bank has got the go-ahead from Qatar to
open an Islamic branch there, a move analysts said could prompt other Islamic
lenders in the region to follow.

Qatar's central bank issued a ban in February on
conventional banks operating Islamic branches amid concerns of an overlap.
Concerns also emerged that conventional lenders with Islamic operations had an
unfair advantage over standalone Islamic institutions. Lenders have until Dec.
31 to comply.

"We have received authorisation from the
government," a spokeswoman for ADIB said on Thursday.

The Qatar Financial Centre Regulatory Authority (QFCRA) said
in a statement that the authorisation will allow the bank to carry on regulated
activities in relation to deposit taking, providing and arranging financing
facilities and managing investments.

"The easiest way for foreign banks to get into Qatar is
to get a QFC licence," said Mahin Dissanayake, director at Fitch Ratings.
"But there are restrictions to what they can do. With ADIB they are really
only allowed to do wholesale banking so that shouldn't change the competitive
environment for Qatar drastically."

Analysts said that the central bank edict will benefit local
Islamic institutions, such as Qatar Islamic Bank and Masraf Al Rayan , who
stand to capture the Islamic liquidity that will suddenly flood the market.

But there may also be room for foreign players to try to
grab some of the business, said Jaap Meijer, senior analyst at AlembicHC.

"While we feel that most of the Islamic market will go
to local banks there might be some interest in foreign banks," he said.
"They could attract a couple of percentage [points of market share]. For
some foreign banks that might be enough to start with."

Islamic banking growth is expected to be stronger in Qatar,
analysts say, which would draw the attention of regional players if the
government grants licences.

"Qatar is seen as an attractive market by most players
in the region," said Ibrahim Masood, senior investment officer at Mashreq
bank. "The growth in banking is strong in the Islamic space so I would not
be surprised to see standalone Islamic banks being more aggressive."

But there is no guarantee that Qatar will be as open to
letting outsiders take market share that could be the preserve of local Islamic
banks.

Some bankers have said that the central bank's decision to
ban conventional banks from having Islamic operations is a deliberate move to
boost Qatari Islamic banks.

Firms such as Qatar Islamic Bank, for instance, could add 35
percent to its loan book if it captures even 50 percent of the Islamic assets
expected to flood the market following the central bank's decision, Meijer
said.

Allowing too many foreign players could cut into the profits
of homegrown Islamic institutions, said one Qatar-based banker, adding that
conventional banks with Islamic branches have not even been able to apply for
licences to create standalone entities.

"There's a general feeling that QCB bowed, in part, to
pressure from Islamic banks in Qatar to shut out excess competition," he
said. "Allowing a number of foreign Islamic banks to come in may not make
sense from that perspective."

No one at the Central Bank was immediately available for
comment.

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