The Middle East is going through cultural and economic changes and nowhere is that more evident than in the skyscraper wonderland of Doha, Qatar.
BUSINESS LIFE caught Group CEO of Doha Bank, R. Seetharaman, on his way to the World Bank and IMF Annual Meetings and snapped up the opportunity to ask him about the country’s financial sector in light of the anticipated global economic recovery. He commended the exceptional handling of the situation by Qatar’s regulators and delved into his bank’s performance and novel products. He then went on to give his opinion on the current state of regional economies, laid out the different strategies used to face the crisis and gave his opinion with regards to protectionism and raising tariffs.
BL: What is your take on Qatar’s economic performance during this current crisis?
R. Seetharaman: Qatar has been performing reasonably well, with a real GDP growth of 9-10%, despite the crisis. This is commendable while the rest of the world is in contraction except emerging economies. Even in the GCC, I think that Qatar will be outstanding in terms of domestic product.
When it comes to projects expenditure, Qatar has budgeted QAR38 billion and no project will be cancelled. The budget was supposed to be running with a small deficit of QAR6 billion, however, that was based on an assumption that oil was priced at US$40, but now the story is different as oil prices are rising.
Again, we have diversified our investments. Qatar is looking for QAR90 billion in gross revenue and oil prices have been holding above US$60 for the past three months. In terms of the trade cycle, we have seen that small and medium sized companies are doing well and banks are still financing investment capital.
When it comes to business management, we see a stream of revenues. In my opinion, Qatar will have a steady growth in the coming year and we have an ample capacity; even though gas prices are very low. Qatar has signed long-term contracts with countries like Japan, Korea, India, and UK. Qatar will have a sustainable performance.
BL: Concerning your bank’s performance?
R. Seetharaman: In the last quarter, Doha Bank has registered a 3% increase in profit from last year. We are not affected and we have a sustainable performance in industry. We make conscious decisions. We do not need to be the biggest but must be the best.
During the last crisis, we had a sustainable performance. Now, our assets have grown by 8%. Additionally, the market opportunities are always there and we want to focus on them. We are the only bank in the region to have a full-scale general insurance enterprise that is making a good profit.
Given the scale of operations, we have the opportunity to cross sell. So, we are going to sell banking insurance in the coming years. We have a long-term vision to learn how we could sustain an additional advantage being a full-scale international institution. As for our local market concern, we are concentrating on expanding our existing network.
We know the risks here and they come in multiple forms. We have enough reasons to be cautiously optimistic. We have to optimize our balance sheet management and that is what we have done.
BL: What is your opinion of the current stock market performance?
R. Seetharaman: It is all speculation. The stock market is receding. For example, the cost of oil was around US$30 last February and now it is for US$60. We are getting consistent signals across all markets. If the stock market is recording growth, the bond market is also recording growth, the commodity market likewise, but the question remains on the currency market. I believe in global governance. The international institutions are in public partnership markets. Whether it is called a local bank or a private bank, it is always public. Bringing the global standards and bringing the international financial accounting model together are evolving. This is very true as we see politics and business going along hand in hand. Qatar has a stable financial system and banking sector.
BL: What is your opinion of Dubai’s economy?
R. Seetharaman: It is very unfair to isolate Dubai at such critical times. Doing a monetary policy or a fiscal policy or governance in full scale should be an integral part of the regulations for any firm. Just because they are going through tough times doesn’t mean that they should be isolated. Dubai has the form of a free market enterprise. If you look at the country’s assets, it has got diversity and good infrastructure. Dubai will heal. Dubai has gone too fast in a way. However, Qatar has struck a balance. Being a professional banker, I always tell the facts. The global market is turning positive including the profitability of the institutions. There is a distressed sector in the whole world - real estate. The region was facing problems with the real estate market and was saved by the public partnership approach. Qatar is unique. The banks are still operating and functional and most banks reported a profit. It clearly indicates that financial stability is a concern, and Qatar has responded in terms of fiscal and monitory policies and liquidity.
BL: Some people are speaking of protectionism as the cure for such a crisis, what do you think?
R. Seetharaman: We are part of globalization and international relations. Today you cannot isolate yourself from the principles of globalization. You have to be an integral part of the changes in the world. This is a process where globalization, regulation, technology, and consumerism are interconnecting the world. This is a new world order. So insulate rather than isolate and this is what Qatar is doing. Exposure to the international market is risky and Qatar has stood during the crisis because of its own resources but at the same time would not have made it without the big ventures with international corporations. So Qatar is in for this kind of balance between globalization and market protection, but it is mainly about customization. Globalization is on whether you like it or not. If you look at the emerging market, the incremental GDP growth in 2008 was 64%, and that from the big countries. Global growth is negative. The emerging markets such as in India and China are doing over 8%. These are indicators for us to see that the world is changing and we must change with that. It is foolish not to adapt yourself because you will be backwards. This is a once in a century kind of crisis in the world. GDH is more important than GDP. It is not gross domestic product, but it is the gross domestic happiness. Oil and gas are crucial reserves but why are we not looking at the intellectual capacity of human, the manpower. The capacity to generate products and services. It is not only about the stomach, it is also about the mind. GDH in addition to GDP. Managing and factoring into the accounting system the intellectual capital. The more knowledge is enhanced, the more benefit for the society.
BL: How is Qatar fairing in terms of macro economics?
R. Seetharaman: At the macro level, the economy has achieved a real growth estimated at 16% in 2008, and growth is projected to continue in 2009 at a rate of 7% at a time when the developed economies are expected to slow down their growth to a rate not exceeding 2% in the year 2009. The real growth rates in the GCC are also not expected to exceed 2% in 2009 according to the outlooks of the IMF. The optimistic outlook related to the Qatari economy is based on the mega projects to be achieved during the next three years in the gas, petrochemical and other sectors.
BL: What were economic safeguards put in place by Qatari authorities?
R. Seetharaman: Globally, the banking sector has witnessed the bankruptcy of a number of banks and financial institutions in the US and Europe. The U.S has recently performed a stress test to assess the position of major banks in the U.S. Financial institutions in the developed countries are now unable to play their role as creditors, but the Qatari banks and financial institutions, on the other hand, are enjoying good solvency and financial stability. They registered increases in their net profits of more than 29%, and growths in their total assets of 34%. The overall capital adequacy ratio for Qatari banks, in accordance with Basel standards, is 15%, which is one of the highest. Further, different government authorities in Qatar have proactively worked on protecting our economy and financial institutions from the consequences of the current financial crisis. Qatar Investment Authority had earlier decided to buy 10% - 20% of the capital of some Qatari banks. This was followed by an equally important decision by the Government to buy the Qatari banks’ portfolios of local shares listed on Doha Securities Market as registered in the banks’ books at the closing of the 28th of February at the purchase value for each bank after deducting the provisions as at 31st December 2008. Subsequent to this Qatar stated it would offer to buy up to QR15bn ($4.12bn) of banks’ real estate investments at a sale price equivalent to the net value of property loans and investments. Qatar Central Bank (QCB) has also taken several measures to face the financial crisis. It is worthwhile to note here the significance and importance of the precautionary measures and instructions issued by QCB over the last few years to mitigate credit risks, with particular emphasis on the risks of financing the real estate sector and the purchase of shares.
BL: Qatar is still expanding its carbon economy, how is that reflecting on the country?
R. Seetharaman: The increasing energy demand in the last of couple of years the world over had enabled the Qatar to generate considerable fiscal surplus thereby substantially improving its balance of payments position which has further enabled this visionary state to invest wisely on various industrial and infrastructural projects. This has enabled State of Qatar to gain expertise on diversification and grow on multi-dimensional front with renewed thrust on hydro-carbon sector especially creating additional facilities towards environmental friendly fossil-fuel LNG. On the social front all the important indicators such as healthcare system, literacy rate and women participation in governance indicate steady improvement resulting in significant transformation. Further, unified stance on most of the key issues be it currency union, controlling of inflation, management of its liquidity etc., are been continually addressed through regular coordination through multiple forums with other GCC states are making us stronger day by day.
The State of Qatar has also effectively followed the true principles of globalization that is driving the world economies by liberalization and modernization under the astute leadership of His Highness Sheikh Hamad Bin Khalifa Al-Thani, the Amir of the State of Qatar and His Highness Sheikh Tamim Bin Hamad Al-Thani, Heir Apparent of the State of Qatar
BL: What about foreign direct investments?
R. Seetharaman: Today, the State of Qatar is one of the best investment destinations in the region in terms of state incentives. e.g. Industrial land being provided at a very nominal price, electricity and natural gas are extremely cheap, there are no duties or taxes for 10 years with stable exchange rates, foreign ownership are permissible between 49% and 100% depending on respective sector. There is absolute freedom to repatriate the capital or profit. The rules and framework is very investor friendly. Government is regularly upgrading the incentives to sustain the attractiveness of State of Qatar, such as setting up of free zone etc. State of Qatar continues to look optimistic due to its proactive policy, friendly investment climate and professional environment.”
The State of Qatar‘s banking and financial sector has matured to be second to none in terms of governance, products, service quality, technology and regulatory framework. Further, establishment of Qatar Financial Center brings Qatar prominently into global financial map.
BL: Any last words on the financial crisis?
R. Seetharaman: The ongoing global financial crisis is indeed an opportunity for real commodity driven economies like State of Qatar to showcase their fundamental strengths and come out of the crisis stronger. Further, State of Qatar’s strong march towards various socio-economic-environmental efforts enables us to converge ourselves with the Qatar National Vision 2030.
