Qatari-based conventional banks are going to have to downsize their sharia-compliant lending activities by the end of 2011, to comply with new regulations issued by the country’s central bank. 

An Islamic branch’s capital should not exceed 10 per cent of total shareholders’ equity, while its assets must not exceed 15 per cent of the conventional bank’s total assets. 

Banks have been given 12 months to abide by the regulations, according to a statement issued by the central bank on 29 August. “We aren’t accepting any new licence applications to open any more Islamic branches at the moment,” it stated.

“The major impact will be on corporate lending,” said Philip King, assistant general manager of retail banking at International Bank of Qatar (IBQ) on the sidelines of MEED’s 2010 Middle East Retail Banking conference held on 28 September.

“Corporate deals are usually large in size, [they will be] most affected. Retail financings tend to be small – whether it is credit cards or car loans – so banks should still be able to grow that segment.”

King said the regulatory changes would force banks to reconsider growth plans for sharia-compliant lending.

“We’ll have to review our strategy carefully and I think that will be the case for all the conventional banks, because the goalposts have been moved,” he said. “We launched Islamic banking not just because it’s an attractive growth market, but because it’s something that many of our clients wanted.”

Qatari banks’ Islamic assets grew at an average of 54.3 per cent between 2003-2010, compared to an average growth rate of 37.8 per cent in conventional bank assets during the same period.