Qatar National Bank System - Case Study Example

QATAR NATIONAL BANK The management report focuses on Qatar National Bank and analyses its economic growth, potential, opportunities, risk management and expansion plans. Introduction: Qatar National Bank is doing well. With the help of economic growth and petroleum business, the banking sector of Qatar is expanding. QNB should also explore opportunities in the areas of education, health and tourism. The objective of the study is to prepare a management report about Qatar Nation Bank, (http://www.qnb.com.qa/cs/Satellite/QNBQatar/en_QA/enHome). Qatar is the country from Middle East and holds the second highest position globally in terms of per capita income. The country is rich with oil and natural gas. Some 14% of the world’s natural gas is available in Qatar. The revenue from the natural resource makes the country rich. That is why the country has seen a sustained economic growth in last few years even though the rest of the world was suffering from global financial crisis. For years Qatar was among the fastest growing economy, but from the crisis period in 2008 it is among the top three countries in terms of the growth of GDP. The positive economic scenario allows the banking sector of Qatar to grow. Qatar is the place where the eastern sides meet western people. Apart from the domestic business houses, the hydrocarbon economy has attracted many foreign investors to invest in Qatar, Kerbaj (2006). The contribution of Petroleum is 70% of the government revenue, 85% of the export earning and more than 60% of the Gross Domestic Product (GDP) of the country. According to Shachmurove (2009) a very interesting fact about Qatar is that, there is no income tax for Qatari and GCC nationals. However, it is not a tax free country. Taxes are being collected from business houses, corporate and foreign investor. That is why the banking system in Qatar is bit different from the rest of the world. The apex bank of the country is Central Bank of Qatar. Many commercial bank and foreign banks are operating in the territory of the country. The banking system of Qatar is secure, well financed and well regulated. Regular banking services like, retail banking, corporate banking, branch banking, online banking, mobile banking, credit and debit facilities are available from the bank. Hasim & Chaker (2009) argued that, like in other parts of the world Qatar is also bending towards using new technologies in the banking system such as online banking and telephonic banking as these instruments have made banking easier and accessible. Elsamadisy et al. (2013) argued that, the banking scenario has seen a big change during the pre and post global financial crisis. The monetary policies and other banking policies have also changed according to time. Both English and Arabic are used in the banking transactions. The currency of the economy is Qatari Rihal and 1 Rihal is equal to 0.27 Dollar. International research firms like Global Research argued that the outlook of the banking sector in Qatar looks optimistic. Depending on the public infrastructure and exploring the opportunities in MENA region the banking industry can grow farther in future. Qatar National Bank: Qatar National Bank (QNB Group) was the first Qatari owned commercial bank of the country established in 1964. The mission of the bank is to be the institution of choice for investors, employees, suppliers and customers. The vision is to be the icon of Middle East and Africa. Currently it is the leading bank is Qatar with 76 branches, 335 ATMs and the largest network in Qatar. Since inception the growth of the bank has been steady and it spreader its wings over other countries as well. The market share of QNB, the leading financial institution of Qatar, is more than 45% in terms of banking sector assets. In terms of payment volumes through credit and debit cards, the bank enjoys 50% market share. The portfolio of the bank includes, Oil and Gas, petrochemical, pipelines, metals, telecom, industries, infrastructure, power, real estate, cement, shipping , airlines, services, airlines, merger acquisitions, and others. The bank’s capital adequacy ratio was at 15.6% as on December 2013. The figure was higher than the mandated Requirements of the Basel Committee and Qatar Central Bank and. This shows that how regulated QNB is and how keen the bank is to maintain the system of proper capital flow. International Expansion: Gradually the QNB group became the largest bank in the Middle East and North Africa Region. The group has presence in Egypt, United Arab Emirates (UAE), Syria, Libya, Jordan, India China and other countries. Rose & Wolken (1990) argued that geographical diversification is highly needed to avoid the market saturation in the small territory and helps to tape new market and new revenue sources. The researcher found that through geographical diversification, banks, especially small banks can get a competitive advantage compared to others. QNB has put its footprints in total 26 countries globally including Asia, Europe and MEA. By operation as much as 26 countries it has done geographical diversification successfully. By venturing into Chinese and Indian Market it is taking the advantage of emerging economies. On the other hand, making presence in European countries in is taking the advantage of conventional approach. Globally all together the group has nearly 600 branches, 1240 ATMs and 13600 employees up to2013. Hossain (2008) argued that customer satisfaction and service quality is the key to success in banking in Qatar. Managers should focus more on customer service to get an edge over competitors in the retail banking segment. The qualified professionals of the bank take care of the need of the customer. All these efforts made the organization the leading financial organization of the group. The researchers have found out that, there are major three factors matters in the Qatari banking system. These are infrastructure facilities of the bank, timing of the bank and return on deposit The Area Of Operation of QNB The bank is present in various kinds of operations. Apart from regular retail banking and corporate banking the bank is present in structure and project finance, contractor finance, financing government and semi government organization. It has a special focus on small and medium enterprises. Not only in banking sector, the group is also doing well in insurance market, capital market and brokerage business. QNB is the second largest broking firm in Qatar. Diversifications a good step for a sustainable growth in the business and QNB has successfully followed it. Stiroh (2004) also stressed on the diversification of banking operations. Diversification helps to generate income, revenue and decline the volatility of the business. Performance The bank has started the year 2014 well. The Group has reported a net profit of QR 2.4 billion (USD668 million) in the first quarter. It is a 13.7% increase from the last year’s performance. The prudent cost control policy of the bank has helped to achieve such a growth in profit. Total asset of the bank has also increased by 20.6% compared to the same period previous year. It has reached to QR458 billion (USD125.9 billion). This is the highest ever achievement by the Group. The overall performance of the bank has been increasing. According to the Annual report (2013) of QNG, the big leap is clear if the performance of the bank in financial year 2012 and 2013 is compared. From 2012 to 2013 the net profit and total asset has increased by 13.7% and 20.9% respectively. There has been a growth in loans and advance book by 24.3% from 2012 to QR 311 billion in 2013. The customers have been interested in the bank more and more. The figure of customer’ deposit has been reflecting the positive responses of the customers. It has been up by 24.3% to QR 336 billion. This kind of phenomenon brought the Group’s loan to deposit ratio reaching to 93%. Holmlund & Kock (1996) argued that in these days customers are extremely important component in the banking business. The revenue and performances of banks are highly dependent on the customer base of the bank. That is why, it has been advised to banks to improve the customer relationships of the bank. The overall good performance of the bank has been reflected by Earnings per Share (EPS) and Shareholder’s equity. EPS has been reached to QR13.5, in 2013 compared to QR11.9 in 2012 and Shareholders’ Equity increased to QR54 billion, in 2013 up by 12.0% from 2012. Ali, Akhtar & Ahmed (2011) argued that the well-organized asset management and macroeconomic growth found positive relationship with profitability in the banking business. The credit risk and capitalization brings the bank to achieve lower profitability. The findings of the researchers hold true for the economic situation in Qatar and QNB. Rating of the bank The bank has been able to maintain a good credit ration from all the reputed international agencies which is the best in the MENA region. Treacy & Carey (2000), argued about the importance of credit rating of banks and financial institutions to increase the credibility. The researchers mentioned that the system of credit risk rating are becoming more and more important part of large commercial banks’ management and measurement of the credit risk. The bank has got good rating from the international credit rating agencies. It has got A+ from Stander and poor, Aa3 from Moodys, A+ from Fitch and AA- from Capital Intelligence. According to Bloomberg ranking, in 2012 QNB holds the position of the second strongest bank globally. In the list it was the only representative from Middle East and North Africa (MENA) Region. The bank has been able to achieve such a good rating because it has continues focus on the asset quality of the bank and the strength of the finance. Risk management and auditing system The group has a very strong risk management network. Cebenoyan & Strahan (2004) argued that risk management is extremely important for the banking business. A bank should always monitor the, capital structure and exposure of loan portfolio of the bank. The risk management system is basically dependent of pre determined responsibilities and roles. International regulatory guidelines and the accountability towards the risk exposure are responsible for the sustained good performance of the organization even in the difficult times like global crisis. It has a strong internal and external audit division.) There is an autonomous and independent audit division of QNB Group called, Group Internal Audit division (GIA). As a result the bank has been successful to keep the ratio of nonperforming loans to gross loans at 1.6%. Such kind of level in considered as one of the lowest in the Middle East and North African region. A strong loan boom and credit monitoring has brought the success. Espinoza (2010) mentioned that in GCC region, non performing asset a big challenge for the banking sector. The volume of credit has increased from 2003 to 2008. But since 2009 the credit quality has started falling. Amidst QNB has maintained a good asset quality. Business opportunities for QNB As the economy of Qatar is dependent on hydrocarbon the revenue generation from that source is rolling the economy. Historically, fishery and pearl driving were the prime business of the country before the discovery of Oil in 1940. When in 1949 oil exportation started, the economy of the country jumped to a next level. Apart from this convention business many new types of business are developing in the country. In the last few years the government has taken some steps to invite investment and improve the overall business scenario. These steps are removing unnecessary trade barriers, reducing tariffs to match the standard of WTO. United States (US) being the largest trade partner of Qatar, US and Qatari government are planning a free trade with EU and Singapore. Geiger (2005) argued that, the country also welcomes foreign ownership and that has been improved during 2000 to 2005. According to Clinton (2006) the Qatar government promotes small industries and monitors it during its implementation phase. Major investments are going to healthcare and educational sector. Real estate sector is also doing well as the country is witnessing the housing boom. The country is becoming serious about promoting it tourism to the rest of the world which was absent for years. The export import sector is also growing with a lot of foreign partnerships. If the bank can focus on the sunrise sectors of the country in can generate appreciable revenue. According to Oxford Business group (2007) the increased demand in business will translated to the improved performance in the banking sector of Qatar. Conclusion QNB is the leading bank in Qatar and one of the major in the entire Middle East and North Africa region. The GDP growth of Qatar is one of the largest in the world. With the help of natural resource petroleum, the economy has grown a lot. As a result, the banking sector of Qatar has also grown. The revenue collection, net profit, asset of the bank, loan book and customer’s deposit has increased compare to previous years. The risk management and capital adequacy issues are over the mandated standard given by Qatar Central Bank. Though the management of Non-performing Asset in MENA region is a challenge, but QNB has successfully done it. All of the international credit rating agencies have rated QNB with good grades. The rating is one of the best in GCC region. But there are some more rooms for expansion for the banking business apart from oil and gas sector. The bank should venture into the sunrise areas like education, health, tourism and computer science. References Ali. K, Akhtar. M & Ahmed.H (2011), Bank Specific and Macroeconomic Indicators of Profitability Empirical Evidence from the Commercial Banks of Pakistan, Available at http://joc.hcc.edu.pk/faculty_publications/bankspecific.pdf, Retrieved on June 09,2014 Annual Report (2013), Qatar Nation Bank, Available at http://www.qnb.com.qa/cs/Satellite?blobcol=urldata&blobheader=application%2Fpdf&blobkey=id&blobtable=MungoBlobs&blobwhere=1355494561003&ssbinary=true, Retrieved on June 07, 2014 Cebenoyan. A & Strahan. 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Y (2009), Entrepreneurship in Qatar, Available at https://economics.sas.upenn.edu/sites/economics.sas.upenn.edu/files/working-papers/09-025.pdf, Retrieved on June 07, 2014 Stiroh. Kelvin (2004), Diversification in Banking: Is No interest Income the Answer? Available at http://www.jstor.org/discover/10.2307/3839138?uid=3738256&uid=2&uid=4&sid=21104125000707, retrieved on June 08,2014 Treacy. W & Carey. M (2000), Credit risk rating systems at large US banks, available at http://www.sciencedirect.com/science/article/pii/S0378426699000564, Retrieved on June 07, 2014 Read More