Following directives regarding Islamic banking in Qatar in late 2010 and early 2011, the Qatar Central Bank (QCB) has turned its attention to the retail banking sector.
On 10 April, the QCB issued a directive regarding retail lending, which sets limits on both borrowing amounts and interest rates.
- sets a ceiling at Qatari Riyals (QARs) 2 million and a repayment period of 72 months for loans to Qataris and at QARs 400,000 and 48 months for non-Qataris;
- limits the term of loans to six years for Qataris and four years for non-Qataris;
- fixes a maximum interest rate of 6.5 per cent for personal loans;
- limits repayment instalments to 75 per cent of the borrower’s net monthly salary for Qataris and 50 per cent for non-Qataris; and
- prohibits buying and selling of personal loans between banks.
The directive is viewed as being prompted by:
- a survey conducted earlier this year by the Qatari Supreme Council for Family Affairs suggesting that some 75 per cent of Qatari nationals were overburdened with debt; and
- an aim to encourage the banking sector to retreat from consumer finance and embrace project finance and investment.
The new regulations on personal borrowing will directly benefit many consumers, particularly those with existing loans, but it is thought that the regulations may slow growth and profits at banks that rely heavily on consumer lending.
From recent press reports, we understand that Doha Bank will likely be the most impacted by the regulations, as retail loans make up 32 per cent of its loan book, with Commercial Bank of Qatar at 21 per cent, Qatar Islamic Bank at 16 per cent and Qatar National Bank at 10.5 per cent of their respective loan books.