Raghavan Seetharaman, CEO, Doha Bank, Qatar
The enigmatic CEO of Doha Bank discusses his bank’s rise to one of the region’s leading financial institutions, and offers his opinions on the future of financing when it comes to oil and gas projects in Qatar.
You’ve successfully turned a ‘somnambulant institution’ into a successful, thriving and growing business since you joined in 2002. What has your roadmap been for achieving this change? What has been the one guiding principle that has led you from there to here?
Vision convergence is the key for transformation. Globalizaton, technology, consumerism and regulation were the key areas driving the change. From 2002 until 2008 there was scope for leverage on account of lighter regulation. There was shift from a product-focused, location-centric approach to a consumer-focused and information-centric approach. The expanding business domains resulted in value creation to customers such as one-stop shop, tailor-made products, better service, seamless integration with banking products and cost reduction. The convergence of banking and technology was well underway. After the crisis the financial sector regulatory reforms have tightened, but we have sustained our performance. Sustainable development is the key for success. We have demonstrated this in our key financial indicators such as ROAE and ROAA.
One of the bigger changes you have made has been to expand the services offered by the bank and grow the commercial-facing side of the business, expanding to include project financing, equipment finance & leasing, and risk advisory services. Why was it important for you to expand this side of your business?
Over the last decade, Qatar‘s economy has been largely driven by government expenditure in the project space, whether by way of investments in the hydrocarbons sector in the past or infrastructure sectors at present. We have created specialized units to have a focused approach in meeting the specific requirements of different sets of business clients. According to national development strategy, the aggregate GDP growth in 2012-2016 is expected to average to 6.9 percent, out of which hydrocarbon GDP growth by 4.4 percent and non-hydrocarbon GDP by 9.1 percent. The diversification in Qatar is going to give enormous opportunities and hence Doha Bank has given focus to this. The potential in the project space is once again confirmed by the Qatar budget 2014-15. Infrastructure appropriations are QAR 75.6 billion (USD 20.77 billion) to enable the completion of major infrastructure expansion and development projects related to Qatar 2022 FIFA World Cup. Projects valued at an estimated QAR 664 billion (USD 182.38 billion) are “anticipated to be implemented” during the next five years.
How does your mandate as a bank fit alongside that of the other banks here in Qatar, especially when it comes to the country’s National Development Strategy?
As mentioned earlier, contract financing is an area of focus for Doha Bank on account of the diversification in Qatar. With huge population growth expected in Qatar to support the diversification, we are going to come out with innovative products on the retail sector. SME is going to be the backbone of the Qatari economy and hence we are also encouraging the SME sector with various products. We will also focus on the cross border developments impacting Qatar in terms of trade and investment and provide solutions for the same. We will also participate in syndication deals. With the MSCI upgrade of Qatar we will also focus on wealth management products. We will also provide general insurance solutions to the customers through our insurance subsidiary.
How will the new capital requirements placed on Doha Bank affect the strategy for the coming year?
Doha bank has been optimizing capital throughout its operations in previous years and has internal management benchmarks for capital adequacy. Envisaging enhanced capital requirements under Basel 3 and to augment growth, the board of the bank resolved to increase capital of the bank in September 2012. In 2013, the bank approached the capital market with a rights issue, which was oversubscribed by 1.8 times, and later in the year, local government entities subscribed another QAR 2 billion (USD 549 million) in the form of Basel 3 complaint instruments. This enhanced capital was sufficient to absorb additional regulatory capital requirements under Basel 3 or ICAAP (Internal capital adequacy assessment process under Basel 2 Pillar 2). We can safely say that bank is Basel 3 compliant today. Bank has healthy growth plans and to augment the growth strategy bank may once again approach markets for enhancing the capital in the coming years. This will ensure a healthy bank and at the same time a meaningful return to the shareholders.
Doha Bank was one of the receiving banks for the IPO of Mesaaieed Petrochemical Holding Company. When it comes to the oil and gas sector, how much exposure do you have as a bank?
We have a reasonable level of exposure to the oil and gas sector in the form of Barzan Gas Project, international operations of QP, O&M service providers, rigs financing and engineering, and procurement and construction (EPC) contract financing in the sector. Local banks are generally not very active in the long-term project finance play, which is the forte of ECAs and foreign banks, given their lesser appetite for USD-based longer tenure financing. We had also offered loan facility to retail customers to participate in the IPO of Messaied Petrochemical holding company, but this cannot be construed as direct funding to the oil and gas sector.
The government’s diversification strategy starts from the move of focus from upstream to downstream in the oil and gas sector, and the creation of a solid petrochemicals industry. This sector requires heavy investment – how much of a priority is it for you and where are your areas of focus here?
The focus of the government is on creating downstream capacities for value-added products in the oil and gas sector. We have financed the Barzan project, which is to meet the gas requirements of the domestic industrial sector. The bank will look at every opportunity that is commensurate with its currency resources, with focus on domestic currency and favorable risk returns matrix, whether in project finance or EPC finance space.
Qatar’s downstream oil and gas projects will require long-term financing, which in other parts of the world have suffered, partly because banks are unwilling to lend on such terms. To what extent is Qatar’s National Development Strategy consistent with QNB’s preferred level of risk exposure?
At a macro level, the Qatari economy is driven by the National Vision 2030. As such, different legs of development are synchronized towards achieving the National Vision. The Bank is gearing up its capital base in order to meet the growing requirements of the economy. As for the oil and gas sector financing requirements, the bank would be happy to consider funding of long term projects preferably in domestic currency.
How much space is there for international companies in a development strategy that focuses on the creation of home grown entrepreneurs?
According to Qatar‘s National Development Strategy, between 2011-2016, total gross domestic investment might be about QAR 820 billion (USD 225.23 billion), central government (public) investment should be QAR 347 billon (USD 95.31 billion), the private hydrocarbon sector QAR 84 billion (USD 23.072 billion), and the private non-hydrocarbon sector QAR 389 billion (USD 106.85 billion). Hence the private sector is expected to play a minor role in the hydrocarbon space when compared to the government. Depending on the synergies, international companies can work on various strategies to have tie-ups with various players in the private sector. However it is expected that private sector will play an active role in the non-hydrocarbon diversification of Qatar.
What role do you think Qatar will play in the global oil and gas industry in the long-term? Will it be able to keep hold of its crown as the world’s largest exporter of LNG? Is the moratorium on the North field the right choice for Qatar in this context?
Qatar Holding, the foreign investment arm of the sovereign wealth fund, has taken stakes in Royal Dutch Shell and France’s Total, both of which operate LNG plants around the world. Qatar doesn’t plan to boost exports amid a moratorium on more development of its North Field, the largest gas reservoir in the world. Recently Qatar bought oil and gas fields from Brazil to the Congo. There are various developments such as shale gas in US, demand for natural gas from China and the recent Ukraine-Russia crisis which contribute to the uncertainties in the natural gas market. However, it is expected that RasGas and Qatargas will remain one of the key developers in the world.
Will it be a challenge for downstream companies to find long-term financing in Qatar as they look to grow projects here?
Not at all. Looking at the ability of the banks and corporates in Qatar to attract international capital, it is unlikely to see them face any funding challenges in the local projects space. A cursory look at the recently concluded syndication deals in the GCC region indicate a huge appetite of banks – regional and international – in funding such projects.
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