The Qatar Central Bank (QCB) has issued a directive to restrict banks’ total investment portfolios in equities and debt instruments to 25% of capital from the previously allowed 30% each. The recent decision also sets new limits for investment in individual companies and has introduced a 15% ceiling for total investment in securities outside of Qatar. There are conflicting views as to the outcome of this decision, with some suggesting that the timing of the decision is not ideal because it might derail Qatar’s development ambitions and will deflect the significant impetus from the MSCI upgrade.

On the other hand, it is anticipated that the decision will drive more bank investment into the country’s capital markets, mostly into government securities. The new regulation is also likely to increase demand for domestic government bonds, which could lead to a lowering of yields. The regulation will also encourage banks to increase their lending portfolios to protect their margins and also to issue fresh bonds and Sukuk at lower yields. The QCB is planning to issue QAR1 billion (US$274.5 million) in Sukuk and QAR3 billion (US$823.5 million)-worth of bonds which should generate considerable interest from banks.

Originally published in "Islamic Finance news" - Volume 10, Issue 29 on July 24, 2013.