8/3/2019 Barwa Bank Seizing the Initiative

http://slidepdf.com/reader/full/barwa-bank-seizing-the-initiative 1/3

b a n k n o T e s

QaTar TodaY  d e c e m b e r 2 0 1 136

STeve Troop isn’t one to look a git horse in the

mouth. When quizzed about the recent directive by the QatarCentral Bank (QCB) to slam shut the Islamic windows in con-

 ventional banks by the end o this year, the CEO o Barwa Bank

commented: “It’s a very welcome one indeed!”

Barwa Bank is Qatar’s newest Islamic Bank, and this directive

will eectively see their competition reduced rom 17 banks to

 just three. No wonder he’s pleased. As a new entrant into a com-

petitive market, this is arguably the best break they could have

received. Ability is nothing without opportunity, so their objec-

tive now is to exercise this opportunity.

Barwa Bank was only incorporated in 2008 with an authorised

capital o QR1 billion and a paid up capital o QR500 million,

though this has since been increased to QR3 billion and QR1.9

billion respectively. (A urther increase is imminent ollowing

shareholder approval at an EGM held in October.) The QCB Is-lamic banking directive was published on January 31 o this year,

and Troop and his team began to amend their initial roadmap in

light o it.

“Two things happened,” explained Troop. “One was strategic

and environmental. All o a sudden we had reduced competi-

tion in a market growing aster than conventional banking, al-

beit rom a much lower base. From our perspective, that was an

overwhelmingly positive change in the landscape. The other was

tactical, with the realisation that the conventional banks would

have to close their Islamic windows: we have been involved

in a number o conversations, one o which has resulted in a

transaction.”

Barwa Bank acquired IBQ’s Al Yusr Islamic retail banking op-

erations in an agreement which was signed by Troop and the MD

o IBQ, George Nasra. Under the terms o the agreement, the sale

included the Al Yusr retail loans and deposit account portolios,

the two Al Yusr branches located at Al-Sadd and Al-Rayyan in-cluding ATMs, and the transer o Al Yusr employees to Barwa

Bank. The private and corporate banking portolios, however,

were not part o this deal.

Lack of discussion

The directive caused much angst among many conventional

bankers, who have been vocal in their criticism o it. The QCB’s

explanation o the directive didn’t sit well with them, but it was

the Central Bank’s reusal to entertain any orm o discussion

which caused the most rustration.

There’s an insistence among conventional bankers that it was

almost a case o the tail wagging the dog, whereby the QCB’s hand

was orced by concerted lobbying rom Islamic banks. They ac-

cused the QCB o “handing them our customers” in a sector inwhich they specialise but don’t even dominate.

“I nd these comments rather graceless,” countered Troop.

“It’s patronising to the customers concerned. We operate in an

extraordinarily competitive marketplace and customers decide

which is the most appropriate institution or them – and some

o those decisions are based on personal belies and values. But

customers do choose. There’s nothing to stop a customer rom

having a relationship with an Islamic bank and another with a

conventional bank.”

Moody’s gured the directive would lead to losses o between

8 and 16% o conventional banks’ total deposit base, assets and

prots. Indeed Islamic operations contributed 10-15% o their

B y r o r y c o e n

barwa bankseizing the initiative

The reCenT QCb direCTive To shuT The islamiC WindoWs in ConvenTional banking insTiTuTions Was

meT WiTh derision from a number of The banks, buT The islamiC banks, suCh as barWa bank, are

hoPing This oPPorTuniTY Will helP Them ComPeTe in a verY unComPromising indusTrY.

8/3/2019 Barwa Bank Seizing the Initiative

http://slidepdf.com/reader/full/barwa-bank-seizing-the-initiative 2/3

b a n k n o T e s

d e c e m b e r 2 0 1 1 QaTar TodaY 37

sTeve TrooP

ceo, barwa bank , welcomes the qcb directive to close the

islamic windows in conventional banks

8/3/2019 Barwa Bank Seizing the Initiative

http://slidepdf.com/reader/full/barwa-bank-seizing-the-initiative 3/3

b a n k n o T e s

QaTar TodaY  d e c e m b e r 2 0 1 138

annual earnings. In 2010, Islamic windows in conventional banks

achieved net prots o $1.15 billion against $3.1 billion by Islamic

banks. Surely these gures show that conventional banks’ Islam-

ic windows were more efcient than dedicated Islamic banks?

“It’s difcult to respond to that without sounding overly deen-

sive,” said Troop. “However, the important thing to bear in mindis that the windows o the conventional banks cannot make a ‘net

prot’ – the reason I say this is because they’re not incorporated

entities – they are operating divisions. Some banks – through

their nancial statements – add notes to the accounts where

they project an ‘estimated protability’ or their Islamic window.

Because that Islamic window is not an incorporated entity, it

doesn’t have a prot and loss account in a ormal, structural ac-

counting sense – the prots rom these windows are management

accounting estimates. I you look at the nancial statements or

the banks that had windows, or still have windows, some o those

supplementary notes are expansive, others are very limited – so

getting a genuine handle on the overall

protability o windows is difcult.

“There’s also a narrow technical argu-ment on the way in which costs are allo-

cated to these windows. Most o them, i 

not all, rely to a greater or lesser extent

on their conventional parent or indi-

rect assistance and support, such as in-

rastructure and IT. How much o those

costs are allocated to the windows in the

management accounting process? I think

what I would say is that one needs to take

a sceptical view o aggregate Islamic win-

dow ‘prot’ numbers; my view is that they

are over-stated because, by and large,

they understate the costs that should beallocated to them.”

Why change the landscape?

So why did the QCB eel there was a need

to change the rules regarding Islamic

banking in Qatar? Both orms o banking

reported steady and encouraging prots in 2010 and this year to

date. They had overcome the recent global economic problems

with relative ease and weren’t directly involved in the European

banking mess.

“In terms o environment and landscape,” said Troop, “there’s

a growing desire or many people across the region or Shariah-

compliant banking. That desire is echoed in Qatar where Islamic

banking aggregates are growing aster – albeit rom a smaller base– than they are in the conventional banking space. This created

a lot o switching, where people preerred Shariah-compliant

banking, so I eel the QCB elt the best way o promoting this ac-

tivity was to clearly segregate Islamic and conventional banking.

“There are also technical considerations about the way Islamic

banks need to be managed rom a supervisory and regulatory per-

spective - things that relate to the management o liquidity, or

example. Conventional banks have a ar broader range o short-

term deployment opportunities. Islamic capital and debt mar-

kets are under-developed – though are developing – so liquidity

management is more challenging in Islamic banking. Arguably, i 

you mix the two you don’t get a clear picture.

“Another aspect is the participative dimension o Islamic

banking. The nature o the assets in which we have an interest

is a little dierent. Which means segregation rom a supervisory

perspective also makes sense.”

There was some sentiment within the Islamic banking space

that maybe conventional banks weren’t as ocused on Islamicprinciples as they should be, that there had been some ‘bend-

ing’ o Shariah compliance. However, Troop dismisses this

argument.

“Some scholars have dierent views on certain nancing struc-

tures over others, and some place diering emphasis on dierent

aspects o Shariah compliance. There is also a regional dynamic

– the South East Asian Islamic nance industry has a slightly di-

erent ‘shape’ as a consequence.

“All the windows had their own Shariah boards and scholars.

Products, structures and transactions would all have required

their explicit approval; indeed, it is not unusual or the more in-

terested and engaged customers to ask to

see the underlying atwa. Whilst there may

well have been minor variations as to in-terpretation, I do not believe that, in Qatar,

interpretations were prooundly dierent,

so I don’t think that’s a air accusation.”

Non-Muslim clients

Barwa Bank have been restructuring their

roadmap since January 31. They’ve ac-

quired new customers rom IBQ and have

been enticing others to do business with

them. But can an Islamic institution, such

as Barwa Bank, attract non-Muslim cus-

tomers. Why would a non-Muslim indi-

 vidual, who doesn’t necessarily care aboutShariah compliance do business there?

“The key word is ‘bank’ – we are a bank

that operates under Islamic principles and

provides Shariah-compliant banking,”

said Troop. “However, or our custom-

ers, Muslim and non-Muslim, we want

to provide excellent service, superior products and great value.

  We do compete or customers, we are a commercial organisa-

tion, and there are large numbers o attractive, non-Muslim retail

banking prospects in Doha with whom we would like to have a

relationship.

“As a general observation, we believe there’s a space in the

market or an exceptional provider o service in the retail bank-

ing sector. We are a very young organisation, a recent entrant to acongested market place; there is no appetite or another ‘me-too’

proposition. It is incumbent upon us to dierentiate, and we have

chosen the service proposition, the way in which we interact and

try to wrap the bank around our customers. We’re never going to

be a multi-branch, mass market network – those market segments

are already well provided or – but we do eel there’s a place or a

ocused bank that looks at service or a selective customer base.”

follow

www.twitter.com/qatartoday

“We are a verY Young

organisaTion, a reCenT

enTranT To a CongesTed markeT

PlaCe; There is no aPPeTiTe for

anoTher ‘me-Too’ ProPosiTion.

iT is inCumbenT uPon us To

differenTiaTe, and We have

Chosen The serviCe

ProPosiTion”