HSBC Amanah, the Islamic unit of the global banking giant, is to cease operations in Qatar at the end of the year.
The move to close the bank's Sharia-compliant operations in the country follows a circular from Qatar Central Bankordering conventional banks to sell their Islamic units, which HSBC had hoped to negotiate.
"The central bank's directions are pretty clear: they're not open to interpretation and they don't appear to be open to flexibility," said Steve Bottomley, the regional head of strategy and planning for HSBC Middle East.
"With immediate effect, we cannot open new customers for Islamic banking. By the end of the year, we have to migrate our Islamic business to conventional."
The move may hinder the bank's activities in project finance, where business had been expected to balloon as Qatar prepared to host the 2022 Fifa World Cup, since HSBC will be unable to conduct financing using sukuk, hijra or other Islamic instruments, although it will still have access to conventional finance.
HSBC's annoyance with Qatar Central Bank's new regulations has been an open secret among the banking industry.
However, the bank said Qatar remained a strategic market, alongside Saudi Arabia, Egypt and the UAE.
Staff working at HSBC Amanah in Qatar will be "absorbed" within the conventional bank, with no job cuts predicted.
HSBC Amanah's first branch in Qatar opened last July, at a ceremony attended by the bank's then chief executive, Michael Geoghegan, and the central bank's governor, Sheikh Abdullah bin Saud Al Thani.
But only three months later, the central bank issued a circular banning new Islamic banks from being established, followed by the announcement in February mandating that conventional banks sell their Islamic units.
Mashreq Al Islami, the Sharia-compliant arm of Dubai's Mashreq, has also been blocked from obtaining a licence to operate in the Gulf state as a result of the central bank's actions, according to the bank's chief executive. HSBC Amanah is now exploring the possibility of Oman and Egypt as potential markets.
The Central Bank of Oman announced the opening of the sultanate's first Islamic bank this month.
In Egypt, Sharia-compliant banking may be given a boost by the change of regime. The government of the ousted president Hosni Mubarak had been reticent to allow Islamic banking.
"There's an emerging expectation that Islamic banking will be more favourably viewed in Egypt," Mr Bottomley said, adding that HSBC could begin Islamic operations within 90 days of approval being given.
In addition to the loss of its Islamic operations in Qatar, HSBC is to begin a process of "right-shoring" - cutting jobs and moving positions offshore to regions where it is cheaper to operate, although Mr Bottomley said specific plans had not yet been determined.
The bank, the largest in Europe by market capitalisation, has embarked on a global cost-cutting drive in an attempt to reduce its cost of doing business and to protect its profitable Asian operations.
Last month the bank announced 370 jobs had been cut in the Middle East, out of a workforce of 12,000. A spokesman said 68 of the UAE's staff of 3,100 lost their jobs.
Financial statements for the first quarter revealed HSBC Middle East's profits before tax had increased 91.4 per cent to US$335 million (Dh1.23 billion) compared with the same period last year.
ghunter@thenational.ae
