Doha has bought QR2.7bn ($741m) worth of shares in local banks this month, in the latest stage of its efforts to improve the strength of the sector, according to Qatar Central Bank governor Sheikh Abdullah bin Saudi al-Thani.
The shares were bought by the Qatar Investment Authority (QIA) and follow its purchase of equity stakes worth QR2.6bn in January 2009.
Sheikh Abdullah confirmed the purchases in a speech to MEED’s Qatar Projects 2010 conference in Doha on 26 January.
A senior banker in the country says plans are in place for a similar-sized investment in listed banks in Qatar in January 2011 and 2012.
“With the development projects planned for Qatar, there is a need to significantly expand the lending capacity of the local banks to help fund those projects,” he says.
The amount which banks can lend depends on the size of their equity base, so by creating more equity which is then brought up by the QIA, the banks can expand their lending ability.
“A lot of the banks in Qatar are now either too small or have reached their lending limits, so they need more capital in order to be able to lend,” adds the banker.
Initially, the investments were a way to stabilise the banking sector during the financial crisis, but the banker says the investments will now continue regardless of the financial crisis.
The investments, which involve the QIA buying up newly issued shares, will ultimately give the sovereign fund stakes of about 20 per cent in listed banks.
In addition to buying more than QR5bn worth of equity, the government also spent QR6.5bn buying the equity investment portfolio of the banks in March 2009, followed by a QR14.5bn move to buy the real estate portfolios of banks in June 2009.
Coupled with the next two equity investments, it will bring Qatar’s total investment in its banks to about QR30bn.
The QIA has taken stakes in locally listed banks including Qatar Islamic Bank (QIB), Commercial Bank of Qatar and Doha Bank. However, it has not bought shares in Qatar National Bank (QNB) or International Bank of Qatar (IBQ).
QNB is already 50 per cent owned by the QIA, and IBQ is privately owned by shareholders including National Bank of Kuwait.