Qatar’s central bank’s new rules on Islamic lending released on August 29 are set to be to the advantage of “true” Islamic banks in the long-run, the UAE-based The National reports.
The new regulations prohibit conventional banks from allocating more than 10 percent of issued capital to Islamic banking operations and disallow them from opening additional branches for Islamic banking.
The new rules also limited Islamic finance mudaraba (profit-sharing) and musharaka (joint-ventures) to 5 percent of a bank’s total Islamic operations.
Released on August 29, the change was felt and came to the attention of the brokers only recently. Many investors receive the new move that the winners will be the “true” Islamic banks.
Islamic banks benefited when each of Qatar Islamic Bank, Qatar International Islamic Bank and Masraf Al Rayan were up by 5 percent since the circular was released in August.
Effect of the move
The move will have a wide impact since Islamic banking has been an important driver for conventional banks. Qatar National bank had plans to open four more Islamic branches.
“We’ve received notice from the central bank to wind down our operations. They have almost stopped our Islamic business,” said Louis Scotto, the head of retail banking at Doha Bank.
“Rumor has it that we were competing too strongly with the true Islamic banks and they petitioned the central bank,” he added.
Scotto also said the restrictions could make it more difficult to build relationships with some customers.
“If you’re only doing conventional banking, you’re at severe disadvantage.”
Philip King, the head of retail at International Bank of Qatar, also said the regulations represented “a change in the landscape.”
The new rules come into immediate effect immediately but the banks have more than a year to comply.
Several brokerages have issued research notes saying they do not expect an immediate impact from the regulations because there is no immediate penalty for non-compliance.