Finding efficiency • Chapter summary
Our chapter on the financial sector of Qatar in this edition is focused on the main features that have shaped the sector most recently: mergers; COVID-19; and digitalization. Opening with an interview with Sheikh Abdulla Bin Saoud Al-Thani, Governor of the Central Bank of Qatar, the chapter comprises interviews with representatives from the country’s wide-ranging financial sector: domestic banks operating under both sharia and non-sharia rules, international banks, capital market entities, and, of course, insurance companies.
The Qatari banking sector is increasingly becoming familiar with mergers. With a population of almost 3 million people and extensive expat population, the myriad of national and international banks is an indication of an “overbanked country” that has since shifted its path toward efficiency. Barwa Bank and International Bank of Qatar merged into the now-called Dukhan Bank, and this is to be followed yet by another merger between a conventional bank and a sharia-compliant entity: Al Khalij Commercial Bank and Masraf Al Rayan, respectively.
Also, after being put under extreme pressure following the blockade of neighboring countries in 2017, which initially caused considerable capital outflows, the Qatari banking sector is not new to shocks. COVID-19 has come as another test to banks’ resilience, and they have proven capable of defying the pandemic's impact on 2020 earnings. Aggregate profitability weakened slightly in 2020 with the aggregate return on assets standing at 1.2%, compared with 1.4% in 2019. The banks’ net profit had a 12% yearly decline to QAR20.4 billion, according to Moody’s data.
Regarding digitalization, the country is seeing the arrival of new start-ups and fintech companies that are to ultimately contribute to efficiency in the country. The regulatory side of digitalization is on track, as the Qatar Central Bank recently established its Financial Technology Office and has plans to open a center of excellence in this field. Additionally, the so-called FinTech Regulatory Sandbox from the central bank is in the making and will serve as a controlled regulatory environment where fintech companies, banks, and technology companies will be able to test their solutions in a safe space with certain limitations.
As per the insurance business, after a difficult year, the market is seeing the ground being paved for a brighter future. A draft law has been passed by the Shura Council to make health insurance for expatriates and visitors to the country compulsory. Under the proposed legislation, standard procedures such as obtaining an entry visa, renewing a residence permit, or employing an expatriate will not be possible without health insurance.