Rules of the Qatar Central Bank to Play Its Roles and Maintain Stability in the Economy - Case Study Example

• Introduction

Qatar Central Bank (QCB) is the central regulatory body of Qatar’s monetary policies. The monetary policy of Qatar has witnessed many changes and reforms from 1940s to 2002. The monetary situation of Qatar while it was under the British influence was quite different and several reforms were made to change it to what it is currently. The company generally aims to ensure the transparency in the process of any kind of transaction. It also ensures a fair and safe banking among all the elements. The bank ensures that all the financial instruments are regulated carefully and the costs are also kept in sight so that no scope for manipulation is left. The institute has the power to regulate the exchange rate policy by fixing the Qatari Riyal against the USD and also regulates the monetary policies of the banking industries of the nation. Therefore, this paper will discuss about the regulatory roles of the Qatari Central Bank.

• Discussion

The responsibility of QCB encompasses many regulatory tasks to stabilize the financial sector as well as the market infrastructure of the nation. It has been improved to a great extent due to the impact of the global financial crisis. Therefore, to avoid any such occurrences in the future, the financial standards have been supervised as well as strengthened the financial institutes and capital markets. The role of Qatar Central Bank also does the same to strengthen the regulatory framework of the nation. The approach which is adopted by the central banks takes into consideration the risk based framework with an objective of averting risk. The QCB also has the right as well as power to regulate the insurance companies and can even implement the policies that are in line with the international functions and practices (Hossain & Hammami, 2009).

The role of the QCB can be identified under various dimensions which includes both micro and macro aspects. The microeconomic aspect actually takes into consideration the individual components of the nation’s financial system as well as its response to the uncertain risks. The aim of the central bank is to provide with quite effective regulations in order to improve the risk based framework of the financials institutes as well as the capital markets. The rules and regulations of the central bank is to provide transparency as well as align with the international standard regarding others (Crowe & Meade, 2008). The global crisis was the result of focusing highly on the regulation rather than working on the supervision. Therefore, supervision process has been focused upon highly keeping in mind the risk based regulations that is aligned with the international practices (Hussain et al., 2002).

The banking industry has been very much improved as per the regulations of the QCB. The risk assessment is also conducted regularly and a systematic approach is adopted to do the same. The banking standard has also been kept under strict regulations as well as supervision so that the standards follows the Basel Core Principles and is also aligned with the International Financial Reporting System (Hussain et al., 2002).

The domestic banks are also kept into consideration and the task of assessment is also taken seriously as per the regulations. The regulation is mainly focusing on the creation of the shadow banking system which was one of the main reasons of the crisis of 2008. The risk based supervision of the banks is being created by the central bank in order to monitor the risk score of the banks (Hussain et al., 2002).

The insurance sector of the nation has also been influenced and the responsibility of the insurance regulations has been given to the QCB. Therefore, a new department has been developed in the QCB to regulate the insurance and supervise the insurer as well as the insurance service providers. The insurance regulations of the nation will also be aligned with the IAIS Insurance Core Principles in order to provide it with effective insurance plans and maintain stability (Elsamadisy, Alkhater & Basher, 2014).

The capital market is the place where the financial instruments are bought and sold. Therefore, it is not wrong to say that the modern economy does rely on the capital market hugely. The regulatory bodies of the nation are governing the financial bodies in such a way that the transparency as well as the reliability of the financial services could be ensured. Therefore, a risk based approach has been adopted so as to regulate as well as supervise the capital markets (Ariss, Rezvanian & Mehdian, 2007).

The capital markets as well as the financial systems of the nation are very much influenced by the Islamic law. Therefore, the market follows the rules and regulations of the Shariah law. The Islamic financial system is quite different than that of the other markets. The Islamic banks have been regulated in such a way that it has expanded their activity volume as well as the customer base. The bonds or well known as Sukus in Qatar has emerged a lot and is improving the Islamic debt as well as equity markets (Abdullah & Kassim, 2009).

The financial sector of the nation is currently witnessing a good corporate governance policies and transparency of the financial sectors and the capital market. The availability of better and timely information is also helping the firms to perform better. Therefore, the financial sector also ensures that the stakeholder’s wealth is also kept secured. Therefore, transparency is maintained and all the statements are obliged to be disclosed. The regulatory body ensured that the issuer of the debt or bond should present with all the information that the shareholders seeks and all that is needed to be present to the general public (Al-Muharrami, 2009).

The interest of the investor is aligned with the regulated entities where the compensation structure as well as the performance payment structure should be made publicly available. Therefore, the regulatory body has taken a step where the structure is aligned with the international best practices (Al-Muharrami, 2009).

The QCB law has established a Financial Stability and Risk Committee (FSRCC) which has been assigned where the senior personnel of the regulatory authority as well as the secretariat will come together to support the work done by the QCB. The secretariat will collate all relevant information as well as the agenda are highlighted and managed in order to avoid any kind of issues. The secretariat is also responsible with the task of communicate any kind of advice or recommendation that could be very relevant to the regulatory body (Al-Muharrami, 2009).

The QCB also identifies as well as monitors the systematic risk of the capital markets that can affect the economy of Qatar. The macro-prudent framework that is structured by the regulatory body actually identifies the risk related to the structural development as well as the cyclical trend in the financial system of the economy. The main task in this case is to identify the challenges as well as solve those so as to maintain the nation’s resource-based economy (Al-Thani, 2003).

QCB has a vital role in promoting the financial stability across the nation. Sustainable economic prosperity is considered to be one of the pillars of the development of the economy. Therefore, the main strategy of the regulator is to select as well as manage the path to gain financial stability and to achieve prosperity and avoid any kind of economic unbalances. The investors are urged very much to commit to a long term investment and expand the product base. The nation’s policy also considers the crisis in the economies which could affect Qatar and acts accordingly. However, the state of Qatar is one of the very few countries which are not affected much by the fluctuations as it relies hugely on the exports of the natural resource. The risk aversion strategy of the central bank has already been considered previous in the paper but it is also considering the credit control policy of the economy. The central bank is mainly focusing on the financial development sector of the economy and the supervision has been led upon the containment of the venerable sector so as the economy growth is effected minimally (Abdulla AlNaimi et al., 2012).

The regulatory body is also keeping in mind the hike in the real estate share prices in the region. Therefore, it is taking a cautious measure so that the bank does not engage in such places as the level of speculation is high for such shares. Therefore, the banks are restricted in such areas where the banks are needed to finance for such share prices which are rising due to speculative issues. This step is mainly taken in order to maintain the financial stability and fulfill the development needs of the country. In addition to the same, the interest of the depositor as well as the promotion of the banking system could be established. The inflationary pressure is also aimed to maintained low and the sustainable economic stability is also to be promoted (Goldberg & Tille, 2009).

Special rules for the credit holders are also made where they are divided in to low risk credit facilities as well as special mention credit facilities. Therefore, the low risk credit facilities are available for those who have strong financial stability. On the other hand, the one whose holder does not have high credit worth and the payment has been due for past few months. However, this was in the case of the performing credit facilities where the account holders are committed to their payment of credit borrowed (Al-Qahtani, 2005).

The main risk arises with the non-performing credit facilities where the credit due is not confirmed it will be paid or not. Therefore, this is generally divided into three groups, substandard, doubtful and bad. In this case, the customer has failed to pay installment or promised to pay the same but is not sure. On the other hand, bad debt is one of the most important issues where the borrower defaults and this is actually a loss to the sector. Such types of issues are quite problematic where the economy may face trouble exact the same way as it happened during the great depression. In this the central bank actually allowed the banks to exclude the 100% from the balance sheet of the bank. It is however could be reimbursed if the same is registered in a systematic manner and the paper related to it and that of the collection process is attached to the same as the evidence. The exclusion of the bad debts or provision by the bank can only be done after the permission by the board of directors after receiving no objection by the central bank. QCB also made a rule where it needs to be notified by the banks if they want to write-off the provision from their balance sheet (Hossain & Hammami, 2009).

AS previous discussed that the real estate share prices are high in the market, the central bank also initiated some laws in the same to as to play its role to maintain financial stability. The central bank actually re-evaluated the regulation where the real estate financing by the bank is limited by a huge extend. This considers that the any kind of real estate financing done through the bank should not exceed the 100% of Tier 1 capital. More to this if any customer seeking fund for real estate then the loan will be given based on the salaries (Hossain & Hammami, 2009).

• Conclusion

After the great depression of 2008, many countries have started de-regulating their financial structure in order to maintain stability and avoid economic chaos. This study has focused on the laws and rules of the Qatar Central Bank in order to play its roles so as to maintain stability in the economy. The central bank has been very much focused upon the credit lending facilities of the bank. It is so because defaulting from credit payment was one of the major causes of the crisis and the nation never wanted to repeat the same in Qatar. Therefore, the major step which it took was to the limit the real estate credit for investors and provides loans to the customers of the same based on their salary structure.