Islamic banks rise as competition drops

Shares of Qatari islamic banks surge after the central bank releases a circular ordering conventional banks to stop offering islamic banking activities immediately and close islamic branches by the year's end.

Qatari Islamic banks are to have less competition and therefore, the thinking goes, more profits.

Shares in Masraf Al Rayan, the country's second-largest Islamic bank, climbed 10 per cent yesterday after it emerged the Qatar Central Bank is terminating the Islamic activities of conventional lenders.

The shares closed at 23.10 rials yesterday, the highest since June 2008.

"The reaction to the share price has been quite strong," said Tarik el Mejjad, the vice president of banking research at Nomura in London.

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Masraf Al Rayan was far from the only bank to benefit from the news. The stock of other Sharia-compliant lenders also surged, including Qatar International Islamic Bank, which was up 9.9 per cent at 56.60 rials, and Qatar Islamic Bank, which was up 9.4 per cent at 88.30 rials. The central bank circular said lenders that were not Sharia-compliant must close their Islamic branches by the end of the year and stop accepting deposits in these units immediately, according to the newspaper Al Sharq.

Qatar National Bank, Commercial Bank of Qatar, Doha Bank and International Bank of Qatar all have Islamic banking divisions. Qatar National Bank shares were down as much as 5 per cent yesterday.

The latest move follows a circular released last August prohibiting conventional banks from allocating more than 10 per cent of issued capital to Islamic banking operations, and barring them from opening additional branches for Islamic banking. Bank executives interpreted it as a signal that conventional lenders were considered to be moving too aggressively into the Islamic sector.

Masraf Al Rayan only two weeks ago reported an increase of 38 per cent in full-year profits to 1.2 billion riyals from 2009.

The bank's chief executive, Adel Mustafawi, told Reuters he saw the central bank's latest move as "positive" and he believes it will help increase the bank's customer base.

"We see it as a very positive move for both conventional and Islamic lenders," Mr Mustafawi said.