The Qatari financial services sector

Spearheading Qatar’s bold push into this industry is the Qatar Financial Centre, which was set up at the start of May 2005 and is housed in the 20-floor, 14,140 square metre QFC Tower in central Doha. The QFC has the uncompromising objective of establishing itself as "the financial centre of choice for the Middle East", which is an ambitious target, given the growth in recent years of the Dubai International Financial Centre and the continued expansion of Bahrain – which throughout the 1980s and the 1990s was the premier financial centre in the Middle East.

The QFC, however, believes that it is well positioned not just to compete effectively with these established centres but also to build its own credentials as a regional leader in financial services. The decisive force behind that objective is the Qatar Financial Centre Authority, which is responsible for "driving the commercial strategy and for developing relationships with the global financial community and other key institutions both within and outside Qatar. It has as its primary role to establish, develop and promote the QFC as a leading location for international finance and business designed to attract international banking, financial services, insurance businesses, corporate head office functions, as well as other business." The QFCA adds that its other principal objectives include "the adoption of international best practice and elimination of bureaucracy to the maximum extent possible, and ensuring the financial stability of the QFC".

Clarity and consistency of regulation has been a key factor in attracting firms to the QFC, which is governed by the Qatar Financial Centre Regulatory Authority. This is an independent statutory body that reports directly to the council of ministers, and regulates and supervises the full spectrum of financial services activities conducted in or from the QFC.

Aside from being able to participate in the huge opportunities arising from the infrastructure investment programme now under way in Qatar and in the GCC, firms assessing the potential of the region have a number of other incentives for establishing a presence in the QFC. These include the right to 100% ownership and complete repatriation of all profits, as well as generous tax holidays.

The global financial services community has responded enthusiastically to the opportunities presented by the QFC. By December 2006, 33 companies had been licensed by the centre, and by early November 2007 that total had doubled to 66, with many more applications in the pipeline. Of that total, five were categorized as investment firms, 25 as banks or financial institutions, and seven as insurance companies, with the remaining 29 classified as non-regulated companies, or those that do not conduct financial services supervised by the Regulatory Authority.

The roster of multinational banks that are now present in Qatar already reads like a Who’s-who? of the global investment banking industry, with ABN Amro, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, Lehman Brothers and Morgan Stanley all having been licensed by November 2007. For many of the firms that have set up shop in the QFC, establishing a presence on the ground in Qatar is simply a natural extension to a business relationship that already had a sound footing long before the QFC was formally set up. For example, when Barclays Capital was granted its licence to operate in the QFC, in September 2006, it announced that "historically Barclays has always been active in Qatar, but securing a licence will provide a base from which we can develop a permanent presence in the country and expand further across the region".

As another example of a bank that has recently established a presence in the QFC, take a global heavyweight such as Citibank, which for many decades has had a highly successful Middle Eastern franchise. "Citibank is not new to Qatar," explains Farhan Mahmoud, CEO of Citi in Doha. "We had previously covered Qatar from Bahrain and have participated in most major gas projects in the country as lenders. In addition, we have built solid relationships with local financial institutions over the years. However, with an onshore presence, Citibank NA will expand its customer base and add depth to the product offering."

For the time being, there appears to be plenty of business to go around in the GCC to keep players such as Citi busy in a number of regional financial centres. Project finance is the most obvious area that has attracted banks to the QIC, with Qatar itself planning infrastructure developments worth at least $100 billion over the next five years.

The global market for Islamic financial services, which has been one of the most dynamic sub-sectors of the global capital market in recent years, is another good example of a vibrant area in which banks throughout the region are keen to bolster their presence. Qatar is positioning itself to play an increasingly prominent role in the growth of this market, and within Qatar itself, according to data published by Qatar Islamic Bank, Islamic banks now account for more than $11 billion of the domestic banking sector’s total assets of just over $60 billion.

Another important growth area that has been identified by banks operating in the QFC is private banking. It is noteworthy, for example, that firms such as Barclays and Deutsche Bank have both indicated that they see wealth management as a promising growth area in Qatar. It is easy enough to see why: according to the 2007 edition of the Merrill Lynch/Cap Gemini World Wealth Report, total high-net-worth individual wealth in the Middle East grew by 11.7% in 2006. That is down from the 19.7% growth rate posted in 2005, which is probably a reflection of the sharp correction in Middle Eastern stock markets in the first half of 2006. Looking to the future, however, the Merrill Lynch/Cap Gemini report believes that HNWI wealth will grow more quickly in the Middle East between 2006 and 2010 than anywhere else – expanding at an annual rate of 9.5% compared with a global average of 6.8%.