DOHA: Qatar’s banking landscape is likely to change considerably with the planned three-way-merger of Masraf Al Rayan, Barwa Bank and International Bank of Qatar, according to a document released at the just concluded 4th Doha Islamic Conference.
If the merger is approved, the three banks will form an Islamic bank with assets totaling QR163bn and emerge as the largest Shariah-compliant lender in Qatar. It will command a share of 47 percent of Islamic banking assets.
“In an overbanked market with a large number of banks and high banking penetration levels, consolidation is a cost of effective way to restructure the banking system and can help in improving its financial stability by eliminating institutions that are perceived as inefficient and without adequate liquidity and strong asset bases”, the document noted.
Earlier, speaking to The Peninsula, top industry sources said Qatar’s banking sector is expected to witness more mergers once the three-way-merger completes. “Discussions are going on over the probable takeovers of relatively small banks”, he said. Backed by strong liquidity, larger banks may acquire a couple of smaller banks to expand their operations, sources added.
Given both relatively high banking penetration, as well as its largest five banks controlling over 90 percent of banking assets, Qatar is arguably also an overbanked market. Within the context of the wider banking sector, the proposed merger is a step towards consolidation, the document, jointly prepared by Qatar Financial Centre (QFC), Thomson Reuters and Islamic Research and Training Institute (IRTI) noted.
“Looking further into the Islamic banking segment, it is highly concentrated, with only four banks, two of which control over 70 percent of Islamic banking assets. With this merger, the segment will become even more concentrated, with only three players and the largest two controlling 87 percent of assets. The risks inherent in such a move include reduced competitiveness in the market, leading to increased pricing power for the larger players”.
In recent years, given an increased regulatory focus on the liquidity and financial stability of banks, there has been a wave of bank consolidation in emerging markets. With the enforcement of more prudent regulatory requirements including Basel III standards, smaller banks that previously operated with high risks began to struggle to comply with these new requirements. Consolidation soon emerged as a solution for such banks, wherein a group of smaller banks would merge to form a single bank that could comfortably operate while complying. Qatar’s banking industry may take a cue from this emerging market experience, going forward.
