The Qatari banking system has been mostly unaffected by global financial turmoil
In an interview, H.E. Sheikh Abdullah Bin Saud Al Thani, Governor of the Qatar Central Bank, discusses its function in assuring financial stability, and the role of the Gulf Cooperation Council countries in the global economic recovery.
What role will the Middle East, and more specifically the GCC, play in shaping future investment and global economic trends in the mid-term?
As you are aware, even after six years of the global financial crisis, global recovery is still fragile and the financial system faces risks. While economic recovery continues, it has been uneven and downside risks have increased. In this environment, the steady growth and solid economic and financial fundamentals of the GCC region will aid in global recovery. Going forward, the ongoing economic diversification strategy pursued in the region will not only create opportunities for domestic private investors but also enhance scope for foreign investment in the region. The sizable outward remittances from the region along with foreign aid and investment will continue supporting many economies outside of the GCC. Moreover, the GCC region will continue to benefit the global economy by supplying adequate oil and gas and thereby helping maintain stability in the global oil market. At the same time, authorities in the region should be mindful of the challenges and risks from geopolitical issues, oil demand and prices, and financial market volatilities and pursue prudent policies to stay on course
Taking into account the four guiding principles of Vision 2030, and the nations rapid development in recent years, how will the State of Qatar realise its socioeconomic aspirations?
A key strength of the inspirational Qatar National Vision 2030 is that it is subscribed to by all Qataris.
The vision aims at transforming Qatar into an advanced country by 2030, capable of sustaining its own development and providing for a high standard of living for its people for generations to come.
Several years into the Plan, we see real progress being made. Already, Qatar is the top achiever in the UN human development index in the region. Economically, our population has the highest per capita income. In 2014, Qatar is placed second highest in the GCC region in the global Competitiveness Index with a world standing of 16. Equitability is a key principle of the plan. In the World Bank’s Human Development Index for 2013, Qatar has an income Gini coefficient of 41.1, which compares well with 40.8 for United States. Qatar’s infant mortality rate was 7, which compares well with for the U.S. Other development indicators for Qatar, for example, in education and health, read very well too. Our conclusion is that Qatar is on course towards the national vision. Yet, we must not be complacent but be focused on our commitment and diligence under the visionary leadership that led us to our present achievements.
The Qatari riyal is pegged to the U.S. dollar, anchoring monetary policy for the state and reiterating Qatar’s faith in the global currency in addition to the pegged rate, how is the central bank exploring new means to fortify Qatar’s economy?
The dollar peg provides a credible anchor for our monetary policy and for most of the period in which the peg has been maintained, the Qatari economy has benefited from the stable economic environment in the U.S.
As in any fixed exchange rate regime, QCB monetary policy is drawn and implemented to manage the short term interbank interest rates with a view to sustain the fixed parity between the Qatari riyal and the US dollar Within this policy framework, the QCB endeavors to regulate overall liquidity so as to maintain monetary and financial stability. Treasury Bills and Government Bonds are t o market based instruments available to the QCB for effective management of liquidity and conduct of monetary policy.
These instruments have helped in proactively managing structural liquidity in the system since 2011. QCB has also employed macroprudential tools such as sectoral limits for the borrower groups and individuals, and loan-to-deposit ratio for banks, which play a complementary role to monetary policy in strengthening financial stability. Moreover,
QCB has taken the lead role in implementing the Basel III frame work, strengthening financial market infrastructure, and promoting regulatory cooperation
through the establishment of the Financial Stability and Risk Control Committee, all of which aims at making the financial system more resilient. We have a Strategic Plan for the financial sector, which aims at supporting the economic diversification objectives of the National Development Strategy and helping realise the goals of Qatar National Vision 2030.
Qatar Central Bank continues this week its policy of monthly issuance of QR4 billion to absorb the excess liquidity in the banking system.
QCB has been conducting auctions of Treasury Bills since May 2011 and Government Bonds since March 2013 for effective management of systemic liquidity and conduct of monetary policy. These instruments have helped in proactively managing structural liquidity in the banking system. At the same time, it is expected that auctions of these instruments along with their transactions in the secondary market will facilitate the emergence of a proper yield curve, which will help in the efficient pricing of other debt instruments in the market as well as help banks in managing their liquidity more effectively. As regards the continuance of this auction policy, we would like to mention that it would depend upon the evolving macroeconomic conditions, credit growth and overall liquidity conditions in the banking system as well as the monetary policy objectives.
How is the recently introduced legal framework that meets both local and international standards set to encourage foreign direct investment?
For Qatar, the favourable tax regime coupled with strong macroeconomic fundamentals and robust growth outlook supported by growing non hydrocarbon sectors and large infrastructure investments have aroused much interest from international investors.
In fact, in 2014, Qatar Stock Exchange has been upgraded by leading rating agencies (MSCI and Standard & Poor’s) to emerging market status, which is considered the A-list of growth markets and should attract equity portfolio investment inflows. In addition, Law No.9 of August 5 2014 increased foreign investors’ ownership limit to 49 percent for listed Qatari companies and more recently, the establishment of Qatar as the first regional Renminbi clearing and settlement centre and the two-way line of currency swap agreement between Qatar Central Bank (QCB) and the People’s Bank of China are expected to facilitate trade and investment activities. The Strategic Plan for Financial Regulation aims to create and promote a conducive and investor-friendly environment.
Some important steps were taken recently to enhance the liquidity in Qatar Exchange, such as the allowance of margin trading and liquidity providers. Do you see the effect of such steps on expanding the values of trading in QE?, and as a Chairman of the QFMA, how do you evaluate the performance of Qatar Exchange in 2014?
In 2013, Qatar Financial Markets Authority (QFMA) approved the liquidity provision scheme that can be carried out by financial services firms, which are members of Qatar Stock Exchange (QSE) after obtaining the required regulatory licensing. This scheme together with the new rules on margin trading offer a number of advantages for the market and investors, such as increasing trading volumes and liquidity. These measures will assist in reducing price volatility, promoting confidence among investors, fostering the listing of new companies and ensuring a fair and orderly market.
Qatar has a flourishing banking sector, which has survived global instability. How has the implantation of Basel III and the Qatar Central Bank’s combination of it with directives specifically geared for the Islamic Finance sector encouraged/enforced regulatory reform?
Indeed, the Qatari banking system has been mostly unaffected by global financial turmoil. Supported by strong macroeconomic fundamentals and sound regulation, banks remain resilient with adequate capital, comfortable liquidity positions, high asset quality, and good profitability.
In addition, significant progress has been achieved under QCB’s financial regulatory agenda as envisaged in the Strategic Plan and conforming to international standards. Since January 2014, all banks in Qatar are mandated to accomplish new capital requirements based on Basel III standards. Basel III guidelines on liquidity coverage ratio and liquidity risk monitoring tools are also in effect since early 2014. Although stress-testing results showed no significant vulnerabilities, QCB maintains a close monitoring of developments in the entire financial industry The Financial Stability and Risk Control Committee has been established since February 2013 to facilitate regulatory coordination and augment management of systemic risks.
Qatar has in recent years been a prolific investor in London, the best financial capital in the world. With investments ranging from Harrods and The Shard, to Heathrow Airport. But in 2013 relations were taken to another level after The Financial Times reported that the State had allotted £10 billion for British infrastructure investments. Why do you think Qatar has had this flourishing attraction to investments in the UK?
The excellent Qatar – UK relations are historical, dating back to the time when Qatar was a British protectorate. Quite apart from the fact that this good relationship motivates Qatar to invest in the UK, London and the rest of the UK make excellent investment destinations. London’s real estate market, infrastructure and consumer business are all areas that attract investors. The UK’s investor friendly policies, labor relations, and the legal protection available to investors make the UK one of the best investment destinations in the whole of Europe.
As a man involved not only as Governor of the Central Bank but also as Chairman of the QFC Regulatory Authority, QFMA, Qatar Development Bank, Managing Director of the QIA, and Chairman for the Gulf Monetary Council 2014, you have a wealth of knowledge like few of your contemporaries.
What Qatar has achieved has been possible because of visionary leadership and firm commitment by our people to work resolutely to towards our aspirations. Under overarching guidance, it is not only the financial sector that has made such remarkable progress but also many other sectors in line with the economic diversification strategy. In the financial sector itself, we have always been watchful of looming risks and have been prompt in our actions whenever needed. This bodes well for us – our financial sector remains strong and well capitalised, and we were less affected during and following the recent global financial crisis. Our financial regulatory regime conforms to the Basel standards These policies are motivated by a desire to ensure that our financial system remains stable and safe, enabling financial institutions and businesses to go about their businesses as well as help Qatar to be a leading financial centre in the region.
This article originally appeared in a special publication by The Worldfolio produced in conjunction with the 11th World Islamic Economic Forum.