Redundancies looming as Qatar cracks down on conventional firms' Islamic banking functions

Qatar Central Bank's (QCB) move to force conventional banks to shut their Islamic banking units is likely to spur a new round of redundancies in the peninsula at a time when the sector was showing signs of recovery.

The banks affected by the move might have until the end of the year to shutter their Islamic operations, but the QCB's decision has come as a surprise. There was little warning, and no consultation with the sector, meaning that those that coming under the new decree are scrambling to negotiate an alternative solution with the central bank.

In terms of job losses, it doesn't look like being overly brutal. The banks affected by the decision include Qatar National Bank, Commercial Bank of Qatar, Doha Bank, IBQ, HSBC, Ahli Bank and Alkhaliji. Between them, they have 16 branches dedicated to Islamic banking.

Analysts at Global Investment Bank suggest that the move could "curb an important source of income for many banks", but also tips the pure Islamic players - Masraf Al Rayan, Qatar International Islamic Banks and Qatar Islamic Bank - to benefit.

But while these organisations could eventually take up the slack from a jobs point of view, there's still likely to be some initial fallout from the affected firms. It also comes at a time when many have tipped the Qatari banking sector to start expanding again.

So, what's the motivation for this? The argument is that it improves the transparency of the industry and, by removing the "co-mingling" of conventional and Islamic funds, ensures that they remain fully shariah compliant throughout the whole investment process.

And this could be the first of many moves by regional central banks. Ashar Nazim, director of Islamic financial services at Ernst & Young, told Reuters: "We believe that many more central banks will take their cue from what Qatar is doing and the change will bring about more depth and institutionalisation within the industry."

The initial backlash

However, there's also the likelihood that the Qatar Central Bank will be convinced to revise this policy, with banks already leaning on QCB Gov. Sheikh Abdullah bin Saud Al-Thani to review his decision.

HSBC Amanah, for instance, has issued a statement saying it was "communicating with the Qatar Central Bank to seek clarification on the issue". It was only seven months ago that HSBC received the formal go-ahead for its Islamic branch in Doha.