Financing stable growth: From bonds to sukuk

by  — 18 November 2013

Richard Banks, regional director, Euromoney Conferences, in an exclusive interview with The Edge, offers his insights on Qatar’s role in the global financial world, the future of Qatar’s financial regulation, and how the sukuk and Islamic finance market could drive growth, all in the build-up to the Euromoney Qatar Conference 2013 to be held from 10 to 11 December.

Richard Banks, regional director, Euromoney Conferences, tells The Edge that the unified regulatory strategy of Qatar will help develop the country’s capital market and make it a regional model for financial services.
How is the agenda for the Euromoney conference decided? What will the broad topics of conversation be at this year’s conference and why?

This year, our topic is ‘global finance: re-engineered,’ and we expect that Qatar will lead the worldwide debate on the new role of conventional and Islamic finance and capital markets in promoting growth.

Qatar is a vital case in point for the Middle East North Africa (MENA) region, which currently faces opportunities and challenges. It has one of the region’s fastest-growing economies, but also needs to raise significant funds for planned infrastructure mega projects.

Our Euromoney editorial team decides the tentative agenda of each conference about six months before each event, based on local and global news. As we approach the event, we discuss the agenda with our partners and constantly refine the agenda every week in response to new developments.

What impact will the change in leadership have on the economy?  

The leadership change in Qatar will have a positive effect on the economy, as it shows that the leadership is wary of the risks of excessive growth, and does not want to repeat the experiences of some of its neighbours. 

What have your thoughts been on the regulatory developments in Qatar since the last Euromoney conference?

Qatar continues to execute its masterplan in harmonising the national regulatory authorities for the financial sector, including Qatar Central Bank (QCB), the Qatar Financial Centre Regulatory Authority, and Qatar Financial Markets Authority. These authorities have worked together to prepare a unified regulatory strategy, which will contribute to the development of the Qatari capital market and position it as a regional model for financial services. This strategy should attract funds and encourage local investments.

“Bank consolidation is inevitable, because banks in Qatar are in fierce competition with one another.”

What are some of the initiatives the QCB  is considering in developing the bond market?

QCB is considering several initiatives in developing the bond market, with two initiatives in particular that could make a major impact. The first is developing a liquid and transparent Qatari Riyal bond market, which would give the QCB the tools it needs to maintain the country’s financial stability. The second is creating an inventory of the debt structure of Qatari banks and companies, which would enhance systemic stability and financial efficiency.

What impact will the MSCI upgrade going into effect in May 2014, have on the Qatari stock market? 

At the time of the announcement, the Qatar Exchange reached its highest level in five years. The upgrade will also deliver long-term benefits to Qatar’s stock market, and make it easier for people to invest in Qatar’s companies, and benefit potential initial public offerings (IPOs). However, it remains to be seen if there will be any changes to enable more international capital to flow into Qatar’s companies.

Numerous high-level attendees were present at last year’s Euromoney Qatar Conference, including on the far right, now-minister of finance, HE Ali Shareef Al Emadi. A higher turn out of dignitaries and delegates is expected at the Euromoney Qatar 2013 Conference in December. (Image Euromoney Conferences)

Based on this, do you think we will see predominance in equity financing among Qatari investors?

In the short term, Qatari investors will primarily use equity financing, in the stock market meaning of the word. However, in a smaller-sized economy like Qatar, where there is no shortage of capital or liquidity, debt will always be an easier way to raise large sums. As a result, equity financing and debt – both bank debt and bonds - will remain vital for Qatari investors.

Do you think sukuk will play a larger role as a financing instrument in Qatar?

Sukuk will definitely play a larger role as a financing instrument in Qatar. At the moment, sukuk in Qatar is a seller’s market – the market demand is there. However, the bottleneck is on the supply side. 

Sukuk are effectively bonds, so they need more than just buyers. The market needs frequent issuance, large size, varied tenors, varied risk profile and infrastructure. As long as sukuk can be an efficient, and competitive financing instrument, its market will continue to grow as a subset of the wider bond market.

How will the Basel III capital requirements impact local banks?

Qatar’s banking system has sound capitalisation with a capital adequacy ratio of 19 percent, according to Qatar National Banks’s Qatar Economic Insight 2013 report. However, Qatar’s banks are looking for more specific guidance from the QCB as Basel III is phased in over the next several years.

Some feel that with the concentration of banks in Qatar, there is room for consolidation. What is your take on this?

Bank consolidation is inevitable, because banks in Qatar are in fierce competition with one another, and are concerned about the long-term sustainability of compressed margins. Consolidation will enable banks to gain more customers; diversify their risk, rollout advanced technology, and enhance their liquidity, savings and geographic penetration. Bank consolidation will also enable local banks to compete against international banks.

There are some high-profile international speakers at this year’s conference, what value do they bring to the event as opposed to local speakers?

The Euromoney Qatar Conference 2013 is not solely about Qatar, it is about global issues of finance and how they affect the region, especially Qatar.

Because of this global focus, international speakers are vital in complementing our speakers from Qatar’s leading organisations. International speakers bring a wider perspective on how global issues affect Qatar’s economy, and in turn show the world where Qatar fits into the global financial landscape. 

What does Euromoney hope to achieve through its Qatar conference series?

In 2012, we saw strong success on the first of the three-part the Euromoney Qatar Conference, with more than 600 attendees from 30 countries participating in ‘global finance: redesigned’.

One year later, the global economy is at a crucial juncture, as central banks slow their bond-buying programmes that delivered stability during the economic crisis. 

Though the global financial system has stabilised since the financial crisis, economic growth largely remains elusive around the world. Despite what policy makers may claim, we are not out of the financial mess yet. Two issues that we will examine in-depth at the Euromoney Qatar Conference 2013 are the economic structure of advanced economies and their debt burden, in order to find solutions that will benefit everyone. The third Euromoney Qatar Conference in 2014 will be under the theme ‘global finance: relaunched’.

Where does the Euromoney Qatar conference fit into the regional conferences - how do they differ and are there plans for a Gulf Cooperation Council (GCC) conference?

Qatar joins key markets in the Middle East as hosting Euromoney Conferences, including the Kingdom of Saudi Arabia, Kuwait, Egypt, and Bahrain. In each of our markets, we work closely with governments, financiers and investors to ensure the events are locally relevant and meet our high standards.

Too often, the GCC is lumped together as an artificially homogeneous group, which is why we believe that an understanding of the region’s financial systems can only be gained from an in-depth understanding of each individual country.

We work with the GCC General Secretariat on a number of projects, and continue to investigate additional markets and events such as a GCC conference.

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