Qatar's bank rescue success (page 1 of 2)

A year has passed since the Qatar Central Bank (QCB) was forced to rescue the Al-Ahli Bank of Qatar after it ran up losses of more than $25 million. Since then, QCB has been virtually running Al-Ahli, sweeping away old management, propping the bank up with financial guarantees and appointing a small army of international consultants to sort out the mess.
The QCB has been roundly applauded for its efforts - without its intervention, Al-Ahli may well have gone under. But a string of questions remain to be answered. What are the bank's prospects after a year of restructuring? How did it get into such dire straits in the first place? And what are the implications for the wider Qatari banking sector?
Track records. Al-Ahli's new management team, while acknowledging its troubles, is certainly bullish about the bank's prospects. "There are problems, but the problems are being dealt with," insists new general manager Qasim Mohammed Qasim. Qasim boasts an impressive track record in Middle East banking, and is said to have been handpicked by QCB governor Abdullah Bin Khalid al-Attiya. Under those circumstances, it is hardly surprising that al-Attiyah shares Qasim's optimism.
"The financial performance of Al-Ahli Bank of Qatar is improving and it is healing," al-Attiyah said earlier this year. "The central bank is prepared to give assistance and we are evaluating the situation." There are some solid grounds for this optimism. Central bank intervention successfully prevented a run on the bank and Al-Ahli is now off the critical list - albeit with a reduced asset base. Furthermore, officials claim the bank is already beginning to recover some bad loans.
These efforts have won praise within the Middle East banking community. "The new management team has been very busy trying to fill new management posts," says Andy Ioannou, an analyst with ratings agency Capital Intelligence (CI) in Cyprus. "They have been drawing up internal control mechanisms with the help of outside consultants and speeding up the recovery of non-performing loans, which formed over 50 percent of the loan portfolio." However, doubts remain about whether such action is enough to transform Al-Ahli into a genuinely successful institution. "Al-Ahli's strengths for the moment lie in the support it enjoys from the authorities," says Ioannou. "Over the medium term, the bank's prospects are not looking very bright. It must re-establish its presence in an increasingly competitive market."
One move that appears to have been ruled out - at least in the short term - is a merger. Since the problems at the bank surfaced, speculation quickly mounted that Al-Ahli might be taken over by a larger, stronger rival. But central bank governor al-Attiyah has since poured cold water on those rumors. "We must think of activating competition between banks instead of encouraging a big bank to control other banks."
Big mistakes. Foremost in the mind of the new management team is preventing a repetition of the mistakes that caused Al-Ahli's problems in the first place. And that has inevitably led to a detailed analysis of what went wrong. The bank's difficulties date back to the late 1990s, when oil prices hit $10 per barrel. The government was forced to slash public spending in the face of budget deficits. The government is the engine that drives the overall Qatari economy, so its frugal approach meant work dried up for a number of Qatari companies, particularly contractors. This in turn led to a build-up of non-performing loans in portfolios across the banking sector - the Mannai Corporation, one of Qatar's biggest companies, fell victim to the downturn, leaving a host of banks exposed to its debt default.