Bank Overview
Qatar Islamic Bank (QIB) is an Islamic bank that was incorporated in the year 1982. It is one of the shareholding companies hence it provides most of its banking services with the principles of the Islamic culture. So, in this case, it is one of the Islamic banks which can only offer its services according to Islamic principles. The mission of the bank is to ensure that it has incorporated all the diverse financial needs to its customers and this is only achieved through the provision of both contemporary and also traditional products and this is in accordance with the Sharpie principles (an Islamic principle). So in this, it ensures that it has made accessible all the financial needs by most of its clients through providing a wide range of products and also services. It’s through this phenomenon the bank has been at a point to apprehend its set goals and objectives and also competing so well with the rest of the banks in the country. It has also the mission of ensuring that it has ultimately generated a good rate of return by most of its depositors. This is achieved through the high-interest earnings which can be earned by the deposits which are made into the bank. This is one of the ways it has used to encourage more clients to deposit with the Qatar Islamic bank. It also provides capital to most of the companies prior to going public. In this case, the company ensures that it has a wide range of loans that can be given to its customers so that they can be in a position to do their business. So, in this case, you find that so many people have been in a position to expand their business since they are in a position to get cheap loans from these banks. (Abdeen, and Shook, 2000).
Al Bilad Bank on the other hand is a Saudi Arabia bank. It provides commercial banking services which include customers deposits, credit cards, loans, investment banking services which may include investment advisory, management, and in accordance with Islamic principles. So, the two banks in this case are Islamic banks. So, one of the major comparisons of the two banks is that they are both Islamic banks which are said to offer most of their financial services as per the conditions of the Islamic principles unlike the other banks which do not have any regulations as far as the customers are concerned. Al Bilad Bank was established in the year 2004 and this was as a result of the merger of the eight exchange money houses hence the mission for the bank establishment was to ensure that it has provided the Islamic banking services and also products as per the law of Islamic culture and principles. So, it is the second bank to be established under Islamic principles in Saudi Arabia. Now, through the paper, am going to try and compare the two banks. (Abdeen, and Shook, 2000).
The bank operating structure of the financial institution, board powers, and the management structure
One of the major comparisons between Qatar Islamic and Al Bilad Islamic bank is that the management team is selected based on their experiences and also knowledge. So, in this case, the bank ensures that it has employed good managers who have experience in bank management. This is very much important since it’s through proper management which will lead the company realizing its competitive advantage. Al Bilad’s organizational structure is composed of a board of directors. Under the board of directors, we have departments whereby it’s under these departments whereby we have the heads of these departments. The board of directors then provides the management team for the bank in that they help in making the strategic management of the bank. It’s through the management team whereby these people can be employed as per their skills and experiences which will lead to the expansion of the bank. (Abdel-Magib, 2000).
Qatar Islamic bank is composed of the Qatar financial center authority and Qatar financial center regulatory authority. It has also a board of directors with the managing director at the top. Under the board of directors, there are managers who are in charge of the various departments of the bank. This management structure is a bit similar to the Al Bilad management structure. It’s the board of directors who make decisions for the bank. (Abdel-Magib, 2000).
Risk management process and internal control
Risk management just like any other organization is one of the most important aspects an organization has to seek for. This is because many businesses are said to be prone to so many risks since they are uncertain. So, Al Bilad bank is one of the financial institutions in Saudi Arabia which has tried to manage most of its risks. An example of these risks may include the credit risks since it’s a bank that deals so much with the offering of loans to most of its clients. Credit risk, in this case, can be defined as the risk that one party to a financial instrument will fail to stay to its obligation by failure to repay an amount that was borrowed hence leading to huge losses to the lending bank. In trying to manage these risks, management and monitoring of the risks which are associated with these instruments have been solved through the establishment of approved credit limits, hence avoidance of the concentration of the risks. Also, the management has ensured that securities have also been put for those financial instruments or even customers who borrow huge loans from the bank. The bank has also tried to manage its credit risks exposure through the diversification of its investment portfolio. This is very much important since it ensures that there is no unwarranted concentration of risks with its customers. Various securities are also taken but when the need arises. (Al-Jarhi, 2003).
Currency risks are also another risk that is faced by the bank hence leading to the fluctuations of the foreign currencies rates and this is said to be on both financial and also the cash flows of the bank. So in trying to avoid these risks, the bank management has ensured that it has established limits on its individual currency exposure. Liquidity risks are also other risks faced by the bank. These risks are said to occur when the bank is completely unable to meet its set funding requirements in time without incurring any losses. These risks are said to be caused by the market distortions like market fluctuations hence leading to these risks by the bank. So the bank management has been in a position to try and mitigate these risks through the diversification of its funding sources. Its assets are said to be managed with liquidity in mind. It has also ensured that it has maintained balanced cash and cash equivalents. Environmental risks like fires have also been managed by the bank. The bank ensures that it has set finances that will help the bank to finance these risks the moment they occur since they are uncertain. (Al-Jarhi, 2003).
Qatar Islamic bank on the other hand has its software that is dedicated to ensuring that exposure to risks and uncertainties can be properly managed and analyzed. It is due to the rise in technology that has enabled the bank to develop its software to ensure that its finances and funds have been properly managed. The bank ensures that all its risks have been managed by putting in place many considerations. One, it has been in a position to manage the market risks by ensuring that it has diversified its many products in the market. It’s through diversification that has made the bank accumulate so many profits and hence setting some of the finances to try and manage the risks which may occur when running the bank. The credit and liquidity risks have also been managed the same way as the Al Bilad bank hence this is one of the similarities the two banks have in common is trying to manage their risks. (Al-Jarhi, 2003).
Regulatory supervision and also reporting can be evident in both banks. Here, both Qatar and Al Bilad banks have ensured that when such risks have been noted, they are reported to the management in order to ensure that the necessary measures have been taken. This is very much important since it’s through supervision and also reporting of these risks which will help the banks to function so well and also try to manage them as early as possible. (Al-Jarhi, 2003).
Market penetration, segmentation, strategy, and product mix
Market penetration is one of the most essential things which so many banks have realized. Its market penetration has made these companies effectively compete well with the other banks in that country. Now, when we take the example of Al Bilad bank in Saudi Arabia, this is one of the banks which are facing stiff competition from the other banks like Bank Al Jazira. Al Bilad banking penetration as when compared with Qatar Islamic bank is low. Its banking penetration with regard to deposits and credits is low. Also, the total assets of the bank are said below. This is out of the UAE banking sector which resulted in UAE taking over from Saudi Arabia in respect to the total assets. So, this has made the market penetration for the Al Bilad bank be abit law in Saudi Arabia and this is out of the stiff competition from the UAE banking sectors. (Ali, 2000).
Under market segmentation, Al Bilad bank has its customer and market segmentation. It provides all its services to both individuals and also corporate customers. Its mission is to ensure that it has met the needs of several sectors of the Saudi market with its strategies set as follows. One is the issue of the individual customers. It is through the provision of its services to the customers which have led to the growth of the bank through its accumulation of wealth in the upper classes of the members of the society. It gives individual consumer loans to the low and the middle classes. This is out of the strong belief by the bank management which tends to the belief that these segments will try and provide an attractive growth opportunity. It offers needs to its individual customers through the following individual segments. The upper segment of individual customers, the lower segment of individual customers, and the female segment. The other category of its segment is the corporate and the institutional customers. This is because the bank beliefs that the private sector is one of the most contributing factors in the growth of the economy of Saudi Arabia and also the small enterprises are said to only account for a high percentage of firms. It’s with this fact the bank tends to believe that it will expand its financial services to most of the small businesses since they form the largest number of sectors in the economy. (Ali, 2000).
Al Bilad and Qatar Islamic banks have a similarity in their marketing strategies; they have well-established marketing strategies which will help the bank to market its services and products to its customers hence leading to a growth in its returns. It ensures that it has utilized the current assets plus its existing customer relations which will help the bank to try and accelerate its entry into the market place hence building up the bank’s business. It is also customer-oriented in ensuring that it has met all the financial needs of all its customers. It also ensures that it has occupied a distinguished competitive position through the differentiation of its services and its many products. This is because differentiation of products is said to be one of the key competencies which help organizations to do well hence leading to the realization of their competitive advantage. (Ali, 2000).
Qatar Islamic bank has been in a position to enter the market so well. This is because of its strategic management and risk management which have enabled the bank to enter the market so well. Here, it has so many branches hence meaning that so many people have been in a position to access the bank. It is due to the issue of market venturing which has led to the increased stock performance of the bank. Its market segmentation is the same as the Al Bilad in that its segments are individual and the corporate focus. This is because it beliefs that these are the most important people in any business who can lead to the growth of the bank. (Ali, 2000).
Under product mix, the two banks have ensured that they have a variety of services and products which are offered by the banks. In this case, all the financial services are said to be offered. This is very much important since it helps the bank to effectively compete well with the other companies. So in this case, financial services which may include loans, credits, and deposits among other services are said to be offered by the banks hence realizing the returns so well. The graphs below show the stock performance of the Qatar bank and Al Bilad Bank in Saudi Arabia which has led to its improved growth. (Ali, 2000).
Competitive analysis, technology usage, branching domestic and international strategies alliances
Under the competitive analysis, Al Bilad bank has been in a position to compete so well with other leading banks in Saudi Arabia. This is out of the marketing strategies which the bank has put in place. It has dominated the market by effectively competing with the existing local banks in Saudi Arabia. Its success can be referenced to its great focus on the quality of the bank’s services and products which are said to be offered to its customers. It also provides solutions to its customers by providing a wide range of products and services. So, it provides combined products inform of finances hence meeting the consumer’s needs. Another key competency is innovation. The bank in this case motivates innovation in Islamic banking so that it can be in a position to attract more customers. Its transactions as when compared with the other banks are bureaucracy free hence meaning that it can be in a position to realize its competitive advantage. It provides innovative products and also services in a challenging environment. (Chapra, 1997).
Under the technology use, the two banks have applied the new technology so much. This is out of the globalization process which has led to the common market whereby people from all corners of the world have been in a position to trade in a common market. So, it is out of the growth of the new technology which has led to the use of the new technology in the two banks. An example is the ATM technology whereby the two banks have used the new technology to ensure that their clients can be served 24/7 hence reducing the cases of some people claiming that they have not been served. They also use the internet in most of their activities say in advertising their new products and services. It’s the use of the internet that has made the two banks realize their competitive advantage in return. (Chapra, 1997).
In risk management, the two banks have developed software that has made it possible to manage most of these risks. This is a messaging solution that has made the banks try and access and also manage these risks. Under its payments, they use the Swift Net, SARIE, and also Telex networks which have made most of the payments activities of the bank to be quite easy. This is one of the key competencies since it is through the use of the new technology which makes these banks compete so well. (Chapra, 1997).
Loans provisions and policies
One of the key missions for the two banks as I said earlier is to ensure that it has provided cheap loans to its individuals and corporate. This is because these are the people who form the largest part of its market hence they ensure that they have given loans depending on the range of their customers. So, customers have been in a position to access cheap loans whereby they can repay after a stated period of time. But in trying to ensure that such loans are refunded due to the uncertainties, there are set policies for such loans. So the management of the two banks ensures that there are set securities that will help to cater for these borrowed loans in case the borrower fails to repay them back. This is one of the areas of risk management which the banks have been very much concerned with due to the increased risks and uncertainties with these loans. (Ali, 2000).
Asset/liability diversification
The Islamic banks are said to be bound by the Shariah boards in order to utilize their takaful for all their financial protection needs. Most of these banks have an approximation of 3.2% of their total banking sector (PKR4.4 trillion in their total assets). Due to a comparative analysis which was done on the Islamic banks, these banks have developed a mortgage and also a financial service in order to enable the banks to try and diversify their assets and liabilities. This is one of the key competencies which have made these banks have increased returns. This is because the competition has been so much high hence forcing these banks to diversify their assets and liabilities, try and develop relevant business models, reinforce their reputations and brands, boost their commercial entrenchment, improving their innovative solutions among other key areas. (Ali, 2000).
The banks have also tried to diversify their assets into brokerage, margin lending, and also they have tried to leverage finance on behalf of their customers in order to be in a position to compete well with the other competitors. It’s through diversification of its many assets and liabilities which has led to a doubled growth in the two banks. (Ali, 2000).
The banks despite their assets and liability diversification have been in a position to experience a number of constraints and one of these is limited borrowing. This is because they are Islamic banks; it means that they only give loans to the Muslims as per the Islamic principles. It is out of this fact which has made the banks not to highly diversify like the other banks. They also find it hard to efficiently manage their balance sheets from an asset-liability management perspective and this is more specific to the margin rate risk and management. It was this difficulty that made most of these two banks imbalanced funding mix trends. So despite the fact that the two banks have been in a position to try and diversify their many products, they have been in a position to experience so many difficulties which in one way or the other affect their performance. (Ali, 2000).
Derivative product risk management
In trying to be risk-averse by both the Qatar Islamic and Al Bilad banks, one of the activities they have put in place is the reassessment of the key elements of good management of risks which are said to be prudent in these banks. This is very much essential in trying to manage the off-balance sheets by these banks. As many people may argue, these derivative instruments are said to be so much imperative in the overall profitability of these banks hence the need for derivative risk product management. So these derivative transactions will then involve a wide range of financial contracts. The two banks have used these derivatives in trying to transfer most of their risks to other parties who may be willing to accept such risks or even who may be willing to manage these risks on behalf of the banks. So the two banks have been in a position to be risk-averse by ensuring that they have contracted their derivatives to other parties hence they can be free from such risks. This can be seen as one of the most important ways of managing such risks hence leading to the growth of the banks. So the two companies have used these derivatives as their tools in trying to manage their many risks and also as a source of revenue to the banks. For example, Qatar Islamic bank has used these derivatives in trying to identify most of the market risks which might affect the growth of the bank. So the management at Qatar Islamic bank has used these derivatives to effectively reduce the many risks through hedging. (El-Din, 2001).
Off-balance sheet management
The structure of the bank’s balance sheet has been in a position to change over the past decades and this is out of the globalization process and increased competition by most of the banks in the world. In trying to manage our balance sheets, what is most important is to ensure that the assets and liabilities are well managed. This is then taken as the subset of the overall bank risk management process in trying to ensure that the bank has a balance sheet. The off-balance sheet transactions can be seen as one of the riskiest areas for a bank hence the need for them to be well scrutinized. So the two banks in this case have been in a position to manage their off-balance sheets by first managing their assets and their abilities. The issue of assets and liability diversification is one of the major concerns in this case. This particular augmented diversification is initially taken to mean spreading of the many risks which might be experienced by the banks hence affecting their performance. So, the spreading of these risks will try to increase their efficiency in return. This is because if the bank’s assets and liabilities are not well managed, then it is automatic that the bank will run a shortage of enough liabilities and assets to the bank hence leading to substantial losses as a result of the many changes in the interest rates or even in the exchange rates. (El-Din, 2001).
In trying to manage these interest rates and the liability risks, the two banks use the assets and the liability techniques (ALM). They do this to try and look for regulatory constraints which may be leading to the off-balance sheets and also in order to find targets for their profits. The ALM in this case will try to involve the monitoring of the existing position of the two banks and hence it’s after monitoring when it will be in a position to try and evaluate how this differs from the desired goals of the bank. The bank will then undertake transactions which will include the edging programs which will help the bank to try and move towards the set goals and objectives. This is because any bank just like any other organization has its set goals and objectives which have to be realized. But when such goals are not well met, this leads to off-balance sheets hence the need for reviewing the bank policies in order to try and adjust these policies to reach the bank’s set goals and objectives. Since the objectives of both Qatar Islamic bank and Al Bilad bank of Saudi Arabia is to enhance profitability while at the same time controlling the risks which are said to be inherent in modern banking, these banks have been in a position to try and assess their benefits as well as their risks of all the assets and their liabilities towards the contribution which they make to the total portfolio. But due to the fact that problems will tend to crop up due to these portfolios changing, these exchange rates as well as the interest rates do change. It is due to this fact which has made the two banks keep adjusting their assets and liabilities by regular trading with their financial marketing. So, this is the major concern of both banks in trying to manage their off-balance sheets. (El-Din, 2001).
Conclusion
In order to understand money well, then there is the need of understanding the banking system and the special role which these banks play to us in our daily activities. It’s through the banking system which many individuals and also corporations have been in a position to grow through the loans and credits facilities they get from these loans. But for these banks to work effectively, then strategic management is very much important. It’s through a proper strategy that will make these banks to realize their competitive advantage.
Reference
Abdeen, A. and Shook, D. (2000): The Saudi Financial System. J. Wiley and Sons. Chichester.
Abdel-Magib, M. (2000): The theory of Islamic banks: Accounting implications. International journal of accounting. Vol. 8(1). Pp 78-102.
Al-Jarhi, M. (2003): A monetary and financial structure for an interest free economy, institutions, mechanisms and policy. Money and banking in Islam, International center for research in Islamic economics. Institute of policy studies. Islamabad.
Ali, M. (2000): Islamic banks and strategies of economic cooperation. New Century publishers. London.
Chapra, M. (1997): Money and banking in an Islamic economy. Institute of Southeast Asian Studies. Singapore.
El-Din, A. (2001): Ten years of Islamic banking. Journal of Islamic banking and finance. Vol. 3(3). Pp 49-66.