UK
Qatar Central Bank’s (QCB) move to force conventional banks to shut their Islamic banking units is likely to spur a new round of redundancies in the peninsula at a time when the sector was showing signs of recovery.
The banks affected by the move might have until the end of the year to shutter their Islamic operations, but the QCB’s decision has come as a surprise. There was little warning, and no consultation with the sector, meaning that those that coming under the new decree are scrambling to negotiate an alternative solution with the central bank.
In terms of job losses, it doesn’t look like being overly brutal. The banks affected by the decision include Qatar National Bank, Commercial Bank of Qatar, Doha Bank, IBQ, HSBC, Ahli Bank and Alkhaliji. Between them, they have 16 branches dedicated to Islamic banking.
Analysts at Global Investment Bank suggest that the move could “curb an important source of income for many banks”, but also tips the pure Islamic players – Masraf Al Rayan, Qatar International Islamic Banks and Qatar Islamic Bank – to benefit.
But while these organisations could eventually take up the slack from a jobs point of view, there’s still likely to be some initial fallout from the affected firms. It also comes at a time when many have tipped the Qatari banking sector to start expanding again.
So, what’s the motivation for this? The argument is that it improves the transparency of the industry and, by removing the “co-mingling” of conventional and Islamic funds, ensures that they remain fully shariah compliant throughout the whole investment process.
And this could be the first of many moves by regional central banks. Ashar Nazim, director of Islamic financial services at Ernst & Young, told Reuters: “We believe that many more central banks will take their cue from what Qatar is doing and the change will bring about more depth and institutionalisation within the industry.”
The initial backlash
However, there’s also the likelihood that the Qatar Central Bank will be convinced to revise this policy, with banks already leaning on QCB Gov. Sheikh Abdullah bin Saud Al-Thani to review his decision.
HSBC Amanah, for instance, has issued a statement saying it was “communicating with the Qatar Central Bank to seek clarification on the issue”. It was only seven months ago that HSBC received the formal go-ahead for its Islamic branch in Doha.
Defenitely scary for the Qatari Islamic Banking and Qatari Islamic Banks – as well for the Qatri investors/depositors who pump in money into these institutions. Contribution of conventional banks and their islamic banking presence in stabilising the Islamic banks is literally astronomical!
Finally a CB have taking a coherent approach which will eventually strengthen the Islamic finance sector and bring the Islamic financial sector inline with sensitive shariah issue. The next stage will be to prohibit non-Muslims employees in the sector, the practice which is already been deployed by middle-east based Islamic bank as an standard HR policy.
I fully agree with the comments given by hussas. Complete separation of Islamic Banking from Conventional Banking is necessary to avoid co mingling of funds, accounting issues etc. It would certainly help develop Islamic Banking industry as a whole to be able to stand on its own legs and not depend upon conventional banking outfits. Congrats to Qatar Central Bank on their decision.
as a banker worked in qatar, from my pointofview the decision will be benefit to some banks while those conventional banks decision bodies will be cautious in reacting it as islamic banking arms increased their volume and profit in 2010 and it will not harm depositors as they have multioption of switching their account operation to islamic banks and as well as change to conventional methods,which they did prior to switching to islamic banking
whereas the seperation of funds argument is sound, so is the one that this may lead to more development by islamic banks of products etc, but the short – mdeium term effects at least will be regressive on islamic finance in my opinion especially if this applies to the global banks that as well that have islamic windows and brands. The reason is that these global banks have been the rela incubators of islamic product development especially on the global markets side. without their continued innovation the product wealth will be stunted.