Ethical, sustainable, progressive

Banking has become an increasingly competitive industry and one in which only the strong survive. Just ask the survivors of late Banco Espírito Santo. The Islamic banking sector is possibly more competitive still and it takes brains as well as a positive balance sheet to thrive.

To the outside observer, Qatar Central Bank’s decision in 2011, forcing conventional banks to close their Islamic banking windows, looked like a windfall opportunity for the existing Islamic banks in the country. But this conceals the fact that the Islamic banking space has become increasingly competitive domestically, regionally and globally. It is a sector that is becoming progressively more integrated with the rest of the financial services spectrum and this means that the pressure to perform on Islamic banks is as great, if not greater, than their conventional counterparts.

Islamic banking technically started in Qatar in 1983 with the establishment of Qatar Islamic Bank, but it was not until 2005 that the market really opened up and conventional banks were allowed by the Qatar Central Bank (QCB) to offer Shari’ah compliant finance products to clients through Islamic windows. However, in a surprise move by the QCB these windows were closed back in February 2011, prompting several conventional banks such as HSBC to shut shop on their Islamic businesses in Qatar.

Off the back of QCB’s ban, the country’s fully-fledged Islamic banks surged as expectations rose about the possibility of attracting money that was leaving the defunct windows. Great news for Qatar’s big four full-fledged Islamic banks – Qatar Islamic Bank, Masraf Al Rayan, Qatar International Islamic Bank and Barwa Bank.

Three years on and despite the effect of the window closures having now faded, the big four are standing firm having added 57.5bn riyals of assets to their balance sheets, with the youngest of the four – Barwa Bank – proving its mettle both at home and abroad.

To many investors in the UK and Europe the name of Barwa Bank will already be familiar as one of the leading players behind the UK’s recent headline-grabbing Sukuk issue. Her Majesty’s Treasury was delighted that the nation’s inaugural £200m sovereign Sukuk, maturing in July 2019, had been sold to investors based in the UK and in the major hubs for Islamic finance around the world so successfully.

The Sukuk saw strong demand, with orders totalling £2.3bn, in large due to the work of the lead arranger and managers, allocations were made to a wide range of investors including sovereign wealth funds, central banks and domestic and international financial institutions. Investors from the major centres for Islamic finance in the Middle East, Asia and Britain were all represented in the final allocation. Barwa Bank was the only Qatari bank selected and the only wholly Shari’ah compliant mandated bank on the panel. The UK’s own cabal of Islamic banks were reported to be peeved that they were not invited to the table, but with the offer more than 11 times oversubscribed it is not likely that the Treasury will be losing much sleep over their complaints.

"The Barwa Bank Group is very proud of the fact that it is Qatar’s fastest growing Shari’ah compliant bank. This is itself no mean achievement in an industry that sees many banks from the big end of town trying to muscle in on juicy transactions" – Sheikh Mohammad Bin Hamad Bin Jassim Al Thani, chairman and managing director of Barwa Bank and the company’s HQ

“The Barwa Bank Group is very proud of the fact that it is Qatar’s fastest growing Shari’ah compliant bank. This is itself no mean achievement in an industry that sees many banks from the big end of town trying to muscle in on juicy transactions” – Sheikh Mohammad Bin Hamad Bin Jassim Al Thani, chairman and managing director of Barwa Bank and the company’s HQ

“We were delighted to be appointed for this prestigious transaction alongside major international and regional banks. Securing a mandate like this one is the clearest statement of our credibility, track record, solid relationships and delivery. We are very ambitious and have proven that we have the energy, enthusiasm and capabilities to be part of this process,” said Sheikh Mohammad Bin Hamad Bin Jassim Al Thani, chairman and managing director of Barwa Bank.

But this was clearly more than simply an Islamic debt capital markets deal for the bank. It was also about Barwa Bank contributing to the ongoing effort of Qatar’s nation building strategy. “The best way for Barwa Bank to contribute to Qatar’s nation building is through high-profile quality transactions: our role as Joint Lead Manager and Book runner for the UK Sukuk is an excellent example,” says Sheikh Mohammad. “We are, of course, already heavily engaged in the physical building of our nation, given our very significant involvement in many of Qatar’s major infrastructural projects. More generally, successful nations need successful institutions: successful at home and successful internationally. That’s where we can contribute most.”

The Sukuk was a first for the UK but it was not a first for Barwa Bank. The bank had been involved in a number of high profile Sukuk issues including for the Republic of Turkey, Saudi Arabia’s Islamic Development Bank, the Government of Dubai and Qatar’s massive $4bn Sukuk.

New sovereign Sukuk are becoming ever more common in the marketplace with both Hong Kong and Sharjah issuing record breaking Sukuk in recent months. In the case of Hong Kong, its maiden Sukuk for $1bn was oversubscribed 4.7 times while Sharjah’s Sukuk was oversubscribed 10 times. Sheikh Mohammad’s advice to prospective issuers is clear: “Give some thought to a Sukuk issuance. In doing so, you will open up a very large of pool of Islamic liquidity, a pool that represents an alternative source of funding that is currently unavailable to you in that it cannot hold conventionally-structured assets. The overall cost of finance will be as competitive as a conventional bond issue. The recent UK Government Sukuk was priced on the yield curve for UK Gilts with no ‘Islamic premium’. Capital markets origination is an intellectual capital business and our success depends upon the quality of the team that we are able to put in front of a potential issuer and the integrity of advice that we are able to deliver … our proven track-record creates a powerful credential and gives confidence to prospective issuers.”

The Barwa Bank Group is very proud of the fact that it is Qatar’s fastest growing Shari’ah compliant bank. This in itself is no mean achievement in an industry that sees many banks from the big end of town trying to muscle in on juicy transactions. It is not unusual to see Citi, HSBC and Standard Chartered appearing on the prospectus documents of new Islamic debt market instruments. It is equally common these days to see the region’s conventional banking giants join in too, with the like of NBAD making its weighty presence known wherever it can.

So it must have been with some relish that the team at Barwa Bank announced financial results for the first half of 2014 that hark back to the good old days before the global financial crisis (see box). A quick look at Barwa Bank’s recent activity shows a bank that is fine-tuning its operations to take advantage of new markets and new technologies as it races to stay ahead of the pack.

Recent months have seen the bank launch a new mobile banking application for its customers as part of the bank’s investment in digital channels and services, allowing its customers to manage account information anytime, anywhere. This is clearly no passing fad, as Sheikh Mohammad points out, “All banks appreciate the potential around technology, though it is probably fair to say that the Islamic banks have been slower to respond to the opportunity than our conventional competitors. The central and most obvious way in which technology is changing lives is in the ability to manage relationships remotely be it through increasingly sophisticated, functionally-rich websites and more recently, mobile banking through tablets and mobile phones. That technology, and progress in data-mining, also allows us to be far more focused and intimate with our customers in the way in which we communicate with them and, more specifically, the ideas and opportunities that we are able to bring to their attention.”

The bank has also made sure that it plays a leading position in niche, but growth, areas of the market such as Islamic wealth management. Shari’ah compliant wealth management is a notoriously underserved sector and one that Barwa Bank takes very seriously. “Islamic wealth management has very significant potential,” says Sheikh Mohammad. “The stock of global financial assets is estimated at more than $200tn. total Islamic financial aggregates are forecast to break the $2tn threshold this year. By inference, the vast majority of Muslims worldwide hold most of their wealth in conventional form and an institution that can deliver sophisticated Shari’ah compliant product that offers attractive return, flexibility and convenience will find a very receptive market.”

In many ways what Sheikh Mohammed is summing up is the conundrum that faces any finance house that attempts to offer a comprehensive suite of Shari’ah compliant wealth management products. “Identifying suitable investment opportunities and structuring them in a format acceptable to our customers is not without its challenges but we see this as a major area of growth in the years ahead, not least because the success of our economy over the last few years has created large numbers of people who have accumulated capital and wish to both preserve and grow it. Through our wholly owned investment banking boutique, the First Investor, we are able to structure distinctive investment opportunities that we offer on an exclusive basis to the bank’s private banking customers,” says Sheikh Mohammed.

But how practical it is for an Islamic wealth manager to offer a range of products that pass the Shari’ah test? Barwa Bank believes that is has the problem solved: “Examples would include our medium-term, closed end real-estate funds that offer both income across the life of the fund and the possibility of upside through capital gain at termination. We offer both domestic and international opportunities. Good examples might include our Education Fund and our UK income fund. We also offer access to the regional securities markets through our GCC Equity Opportunities Fund which invests in Shari’ah compliant quoted companies and is currently outperforming industry indices and benchmarks.”

Naturally enough, only a small fraction of Qatar’s residents are likely to want or need wealth management services of any sort. So, what part can individual finance industry participants in the GCC play in helping to modernise the way of life of ordinary Arabs across the Middle East? Sheikh Mohammed sees a big role for banks: “I think there are two areas where the finance industry has a critical role: home-ownership is a universal aspiration worldwide but is invariably dependent upon the development of a long-term mortgage market. Progress is being made in this area but we have a long way to go in
terms of making affordable, long-term finance broadly available. The other area is the establishment of a long-term savings culture and a private pensions industry. State pension schemes are developing rapidly but global market experience is that they are most effective when complemented by private provision, whether through workplace schemes or on a ‘portable’ basis. Banks can take the lead in both.”

It is very clear that Barwa Bank is only at the very start of a long growth trajectory and that this will encompass both domestic and international moves. The bank took the plunge and in recent months opened a representative office in the Dubai International Financial Centre. Khalid Al Subeai, acting CEO said, “This is the first time Barwa Bank has opened an office overseas and is testament to our commitment to developing the Shari’ah compliant financial market outside as well as within Qatar.”

But the bank is not likely to take its eye off the domestic prize, which is shaping up to be huge indeed. The GCC as a whole is seeing unprecedented levels of construction and growth with many of the projects being undertaken dwarfing corresponding projects in previous decades. Some nations are building enormous ports and airports and some are readying themselves for major sporting competitions. Qatar is doing all of the above and the project-financing menu for the next decade or more is tempting indeed.

The last word goes to Sheikh Mohammad: “Our first priority is to maximise the potential presented by our domestic franchise as Qatar embarks on the next wave of infrastructural development. Over the next decade we will see the realisation of major plans for transport, electricity generation, desalination, education, health and, more broadly, Qatar’s transition to a more balanced, diversified economy. We are determined to play a leading role in that development and I see this as our primary engine-of-growth over the next 3-5 years. We also have high expectations for the continuing development of our Islamic capital markets business, domestically, regionally and internationally.”


Barwa Bank

Barwa Bank – Qatar’s fastest growing Shari’ah compliant banking service provider

A rising tide lifts all boats

Looking at the profit growth of Barwa Bank over recent years, results that might justifiably be termed stellar, could tend to suggest that the ascent of Qatar’s economy was largely the cause. But this would be misleading. At a time when banks across the globe are slashing headcounts and coming to grips with stringent new Basel III capital adequacy standards, Barwa Bank has manoeuvred itself into lucrative business niches and expanded its franchise geographically to take advantage of opportunities as they have arisen.

The bank’s history is short indeed. The bank was incorporated as a Qatari Private Shareholding Company in January 2008 and in December 2012, the Ministry of Business and Trade approved conversion of the bank to a Qatari Shareholding Company. Barwa Bank secured its banking license from Qatar Central Bank in February 2009 and started operations in July 2009. As the chart shows, it has come a long way in a short time.

The bank is 18.67 per cent owned by General Retirement and Social Insurance Authority, 18.67 per cent by Military Pension Fund (Qatar) and 12.13 per cent by Qatar Holding, the investment arm of Qatar Investment Authority, the sovereign wealth fund of Qatar. The balance of the share register is privately held, owned by several individuals and corporate entities.

The group is justifiably proud of the fact that it is Qatar’s fastest growing Shari’ah compliant banking service provider. Its recent 35 per cent profit lift for the first six months of the year to $113m will have hearted its shareholders no end. The balance sheet recorded significant growth with an increase in total assets of 28 per cent to reach $9.77bn compared to the second quarter of 2013.

Sheikh Mohammad Bin Hamad Bin Jassim Al Thani, chairman of Barwa Bank Group said, “We were able to strengthen our presence in the Qatari market significantly and took part in many important deals during the first half of this year which reflected positively on the financial performance of the Group. We are keen to continue this positive performance in greater pace throughout the remainder of this year, and hope to contribute more to the Qatari banking sector and increase value to our key stakeholders.”