	Overview
	QCB's Role in Promoting Financial Stability
	Banking System Performance Indicators
	Qatar's Participation in International Regulatory Fora
	Department of Economic Policies
	Department of Banking Supervision

QCB has a clear mandate to contribute to financial stability in Qatar—QCB Establishing Law. In its endeavor to promote and maintain financial stability, QCB adopts a two-pronged policy.

One set of policies is geared towards preventing distress situations in the financial system. Liquidity problems, deterioration in asset quality due to bad debts, excessive concentration of credit in vulnerable sectors like real estate etc. are examples of distress situations in a financial system. Preventive measures emphasize regulation and supervision of banks and other financial institutions on a regular basis so as to facilitate early detection of weaknesses in any part of the financial system.

In spite of supervision and vigilance of highest order, it is impossible to completely cushion a financial system from all types of disturbances. Therefore, the second set of policies are remedial in nature and seek to contain crisis at the earliest possible and prevent contagion.

Apart from the regulatory and supervisory roles played by QCB, it also plays a major role in maintaining financial stability through its contribution to price stability, and to maintaining low levels of inflation. QCB, also, constantly ensures efficient and smooth payment system, compiles data for the financial sector and the economy for prudential surveillance purposes, and constructs and monitor financial soundness indicators on a regular basis.

I. Credit Control

Past experiences from several countries highlight the need for central banks and other concerned authorities to be vigilant to financial sector developments. Excessive exposure to vulnerable sectors needs to be contained with minimal effects on the growth prospects of the economy.

In view of the hike in real estate and share prices, and heightened speculative activities in these two sectors that have been witnessed in Qatar over the past two years; QCB has taken certain precautionary measures to limit exposure of banks to these two sectors. Credit for real estate financing and shares purchasing have been restrained by QCB, although by IMF standards, credit expansion in Qatar in general, is still viewed as high. In this context, QCB strives to maintain balance between the development needs of the country at this stage, and financial stability. The objectives of these measures are to protect the interests of depositors and promote stability of the banking system in the first place. These measures also contribute to combating inflationary pressure and promote financial and macroeconomic stability, and therefore, sustainable economic growth.

Regulations, among other things, also urge banks to screen potential investors, pay adequate attention to loan quality, follow up on bad debts, and accumulate adequate provisions for them. These regulations are as follows:

A. Classification of Credit Facilities Policy:

Commercial banks in Qatar are obliged to form a committee to evaluate credit facilities accounts and to classify them once a year, as per international standards set for each category in the following manner:

1. Standard or Pass Loans: These are loans that are fully secured by cash or cash substitutes. The loan servicing capacity for this category is considered to be beyond any doubt.

2. Specially Mentioned or Watched Loans: This classification applies to borrowers with an adverse trend in their operations or an unbalanced position in the balance sheet; but which have not yet reached a point where repayment is jeopardized.

3. Substandard Loans: This classification applies to those loans in which the primary source of repayment is insufficient and the bank must find secondary sources of repayment, such as collateral, and sale of fixed assets. Typically, they are credits whose cash flow may not be sufficient to meet currently maturing loans. Loans that are at least 90 days overdue are classified as substandard.

4. Doubtful Loans: They include loans that are at least 180 days past due.

5. Bad Loans: Loans that are uncollectible and are at least one year past due.

B. Loan Loss Provisioning Policy:

QCB policy on loans loss provisioning is based on building up provisions against non-performing loans, which include substandard, doubtful, and bad loans. The following table shows the level of provisions (as percentage of loans) that banks must build up after excluding suspended interests and blocked deposits against loans.

Nonperforming Loans Classification	Provision level
Substandard loans	5%- 25%
Doubtful loans	25%- 60%
Bad loans	60%-100%

Moreover, QCB requires all banks to build up general loans provisions, with a minimum level of 0.2% and a maximum level of 1.0% of the total credits facilities granted to the private sector. Banks wishing to increase the level of general provision by more than 1.0% must obtain a prior approval from QCB.

C. Securities Trading Credit Policy:

Banks must observe the following regulations while granting credit for trading in securities:

1. Credit extended for purchasing shares in local market must not exceed 40% of the market value of those shares and must not exceed 50% if the securities are purchased from foreign markets.

2. The bank must send official notices to the customer if the market value of securities purchased from funds financed by the bank, drops by 5% or more. The bank must also provide the customers with monthly statements indicating the development of the market value of purchased securities, and containing any appropriate remarks.

3.Banks must liquidate portfolio of shares financed by credit facilities if the market value of those shares declined by 30% or more, unless the customer responds forthwith and reduces his indebtedness and any accrued interest to the limit of financing that the bank is allowed to provide as per the law.

4. Banks may grant credit facilities to finance up to 2/3^rd of the purchase of shares of local companies under establishment. Customer must finance the rest of the share purchasing from his/her own deposits with the bank (not less than 1/3^rd of the share). Banks must ensure that the credit facilities are used directly to finance purchasing the specified shares (Circular No. 9/2006)

5. Banks must not deal except with liquid financial markets as to size and terms of pricing. The currencies of securities purchased must be freely transferable.

6. The total volume of credit extended by the bank to the customer to finance his trading in securities may not at any time exceed 5% of the bank’s capital and reserves, or a maximum of 30 million riyals whichever is less.

7. The bank must indicate investment risks to its customers by means of official disclosure, through circulars, whether customers are aware of these risks or not.

8. The bank must complete the contracts, mortgages, and documentary evidence necessary to ensure sale of securities purchased, at any time without recourse to another customer. The contracts made with customers must include the limits and terms of purchase, sale and liquidation as indicated in the instructions.

9. Before providing credit to customers for the purpose of trading in securities, the bank must acquire the necessary means and expertise for the daily management, control, and follow up of these operations.

D. Real Estate Financing Policy:

The maximum amount of credit provided to all customers for purpose of real estate financing shall be subject to the following regulations:

1. For Commercial Banks: 150% of shareholder’s equity or 15% of total customers’ deposits whichever is less.

2. For Islamic Banks: Average of 150% of shareholder’s equity and 15% of total customers’ deposits.

3. Credit extended for financing the purchase of buildings should not exceed 65% of the total cost of the building.

4. Credit extended for financing building projects should not exceed 65% of the total cost of the project, and the borrower should finance the remaining costs out of his/her own resources. Banks should ascertain that the borrower has used his own funds for the project before approaching the bank for credit.

Banks granting credit to customers for the purpose of real estate financing in excess of the above ceilings and/or in violation of above instructions shall be subject to fine by QCB in accordance with the law.

The following shall be exempted from the above regulations on real estate financing:

1. Real estate finance granted to or guaranteed by the government or its agencies.

2. Finance granted to contracting companies for the development of real estate projects for the benefit of public or private entities.

3. Real estate credits that are collateralized by customer deposits, provided the amount of such credits do not exceed the value of the collateral.

4. Real estate credit guaranteed by banks of good financial position. Such guaranty must be unconditional, fully cover the amount of loan, and be automatically renewable until the customer has repaid the loan amount in full.

5. Real estate credits granted to individuals against their salaries.

E. Credit Concentration Policy:

1. Credit facilities granted to credit group of a single customer must not exceed 20% of bank’s capital and reserves.

2. Credit facilities granted to a main investor must not exceed 10% of bank’s capital and reserves.

3. Total credit facilities and investments granted to credit group of a single customer must not exceed 25% of banks’ capital and reserves.

4. Credit facilities granted to subsidiaries and affiliated companies must not exceed 20% of banks’ total capital and reserves.

5. Credit facilities granted by the banking system as a whole to credit group of a single customer must not exceed 2000 million Qatari Riyals.

6. In all cases, credit facilities granted to one country either in the form of loans to customers or to the government of that country must not exceed 40% of banks’ capital and reserves.

The following shall be exempted from the above regulations:

1. Credit facilities granted to or guaranteed by government & government institutions.

2. Credit facilities that are collateralized by customer deposits.

3. Credit facilities guaranteed by a bank or financial institution of good financial position. Such guaranty must be unconditional, and be automatically renewable.

II. Banking System Liquidity and Solvency

QCB Establishing Law (1993) empowers it to perform certain functions in order to ensure the liquidity and solvency of the banking system in Qatar. Some of the functions performed by QCB are given below:

1. Grants loans to banks that are not fully secured by assets, when such loans are necessary to prevent the bankruptcy of the borrowing bank, or its failure to pay its obligation, or to help it tide over emergency situations.

2. Guarantees fund(s) deposited by one bank with another for the purpose of supporting it in case its liquidity or solvency is endangered.

3. Issues instructions to banks prescribing conditions or ratios which all banks must indiscriminately adhere to, in order to ensure their liquidity and solvency.

4. Exercises the right to revoke bank’s license if its liquidity/solvency is endangered.

5. Stipulates auditing rules for banks operating in Qatar. Accordingly, each bank is required to appoint a chartered auditor registered in Qatar with the approval of QCB, who in turn has to ensure that the operations of the bank are in conformity with the provisions of the various laws and regulations governing it.

6. Conducts inspection of any bank at any time, if it considers such inspection is necessary, and ensures that the bank is in sound financial position and is in compliant with the provisions of QCB’s law and regulations. Furthermore, QCB may prescribe urgent measures to banks that are considered to be in poor liquidity and solvency position.

In addition to the above regulations, QCBs commitment to protect depositor’s interest, promote market confidence, and maintain financial stability has been underscored in earlier occasions when it had to intervene with financial assistance to help local banks in distress. In this context, we quote Moodys’ Report (2006) on ‘Banking System Outlook’ in Qatar, “ A history that shows no depositors have ever lost any money in Qatar.” QCB, as well, played a proactive role in restructuring banks in distress, thereby, helping them to get back to their feet.

Department of Economic Policies

	Credit Control
	Banking System Liquidity & Solvency