The country’s established banks have a strong head start as rivals from around the GCC look to make their mark
In September, local media reports revealed that ten GCC banks have applied to the Qatari Central Bank, the financial system’s regulator, for licences to open in the country. Among these are the UAE’s First Gulf Bank, and Oman’s Bank Muscat. The QCB is expected to approve the licences before the end of the year, with the banks opening shop in the beginning of next year, the reports said.
But new foreign banks may have a tough time adapting to a small market already split between a handful of big players, with limited future growth prospects as deposit growth slows. Eighteen banks are currently open in Qatar. Of these, the seven domestic banks account for the largest number of branches and the majority of the country’s banking assets. The five largest domestic banks—Qatar National Bank, Commercial Bank of Qatar, Qatar Islamic Bank, Doha Bank, and Masraf Al Rayan—between them accounted for 76.7 per cent of the country’s outstanding banking assets at the beginning of this year, according to central bank data. Qatar’s eleven foreign banks account for just 4 per cent of outstanding banking assets, and operate 16 branches between them. The domestic banks operate 184 branches, according to central bank data.
The large share of total assets held by the four largest Qatari banks suggests that the market is not very competitive. This measure is also known as the four-firm concentration ratio, and is a tool used commonly by regulators to examine how much competition there is in an industry. Economics academics hold that a four-firm concentration ratio between 50 to 80 per cent suggests that an industry experiences oligopolistic competition, characterised by a small number of firms that are unlikely to compete significantly. In Qatar, this figure is 7Even more important is the position of Qatar National Bank, which holds more than 40 per cent of all banking assets. One analyst says: “When thinking about the Qatari banking sector, you have to think about QNB versus everyone else. It’s involved with just about everything. If you want to go into a transaction with anyone else, you have to go into business with QNB. It is by far the biggest bank in the region—partially because the Qatar government helps them.” QNB did not respond to a request for comment.
“Qatar’s banking sector is already very competitive, given that there are 18 local banks and branches of foreign banks,” says Dr. Raghavan Seetharaman, chief executive of Doha Bank. “More banks will create more competition, which will see further erosion of margins. While Qatar is still set to deliver a robust growth trajectory, many banks may not be able to fully share in this growth given the crowded banking landscape. The least cost-efficient banks may be forced out of the market. But, ultimately more competition is good for the Qatar economy and the end consumer.”
The entrance of foreign banks should make little difference to the overall competitiveness of the country’s banking sector because of the local banks’ existing advantages, says Timucin Engin, an analyst who covers Qatari banks at Standard and Poor’s. “Lending in Qatar is really quite relationship-driven, Engin says. “The largest banks deal with governments and government-related entities, while the next-largest deal with merchant and trading families. It’s not easy for a foreign player to enter, unless they are entering the market to focus on a particular niche, and to cater to a particular market segment. I don’t think new entrants could create significant new competition.” In the Gulf, foreign banks tend to eke out specialised roles, Engin says. “Many of the Asian banks are interested in infrastructure finance, while many of the European banks specialise in trade finance and treasury operations, for instance,” he says.
Saturation in the Qatari banking market also limits the appeal of the country to foreign banks. With a relatively small population of 2.5 million, and banking penetration at close to 100 per cent, it is hard to see where local banks can turn to grow their deposit bases. “That’s why Qatari banks are looking overseas for growth—because they’re running out of areas to grow in Qatar,” says Engin. Qatar National Bank, the country’s largest lender, owns stakes in subsidiaries in Iraq, France, Luxembourg, Indonesia, and India, among others. Commercial Bank of Qatar bought a major stake in Alternatifbank in Turkey in 2013. “But overall, underwriting the credit of the Gulf will still be done by local banks,” says Engin.
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