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Literature Review: How Do Conventional Banks in Qatar Generate Revenue

Autor:   •  November 30, 2016  •  Research Paper  •  1,488 Words (6 Pages)  •  816 Views

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LITERATURE REVIEW: HOW DO CONVENTIONAL BANKS IN QATAR GENERATE REVENUE

Banks have been referred to as financial institutions that deal with money in the sense that they accept money deposits and at the same time offer credit services to the public (Werner, 2014). Banks have also been defined as profit seeking businesses (Brooks, 2014). Conventional banks are also defined as firms that turn a profit by taking in deposits, and charging a higher rate of interest on loans that they pay on deposits (Mm, R, & Kr, 2015).

Qatar has been named as one of the countries with the best banking system globally(Rocha & others, 2010).  The Qatar's banking system is divided in two sectors: the conventional and the Islamic banking system. The Qatar banking system is controlled by the Qatar central bank. It registers control over up to 18 banks as of early 2015 (Mm et al., 2015). According to, Werner, (2014) the banking industry in majorly dominated by the local conventional banks.

To manage their services while at the same time create profits, banks have to carry out money making activities. Banks in Qatar have make money through three major ways: by lending money and charging interest on the money lent, by charging fees for the services offered by the bank and through trading in the financial markets (Rocha & others, 2010). This paper aims at discussing in detail the methods in which conventional banks in Qatar raise their revenue.

One of the most used methods for revenue generation in banks in Qatar is the issuance of loans. The banks offer loans to their clients which are paid back with interest. Loan taking by Qatar residents has remained high and is still on the rise (Brooks, 2014) due to the due to a high public sector sending. To generate revenue through providing loans, the banks give loans to clients from deposits by other customers. The customer then repays the loans at a higher interest rate for a period of time. The loan amount is then recovered and part of the interest value is given to the bank as its earning. Issuance of loans hence is one of the methods of how Qatar banks generate finds (Al Khulaifi, Al Sulaiti, & Al Khatib, 2005).

Loans are not only offered to clients but to other financial institutions as well. The banks offer loans to other banks. These loans are then paid back with heavy interests and in the process earn the bank major funds (Michell, 2016).

Other than loans, the banks offer credit services to their clients. Credit card loans refer to unsecured loans provided by a bank that earn them heavy interests (Michell, 2016). Due to the insecurity of the credit services, loans provided through credit cards come with a much higher interest than other loans (Ledgerwood, Earne, & Nelson, 2013).

Most banks in Qatar avail credit cards with both limited and unlimited values which provide their clients with immediate funds. The banks then charge these clients premium fees for these services. The Qatar banks also offer debts and bonds to the government to other financial institutions (Al Khulaifi et al., 2005). These are heavily paid back with interest and in the process generate funds for the bank.

Apart from issuance of loans and credit services, cash and cheque deposits by the public is another major source of revenue for the conventional banks in Qatar. In the past financial year, banks in Qatar have witnessed an increase in cash and cheque deposits of about 14% (Rocha & others, 2010). This has been attributed to the high liquidation of assets and funds and also to an increase to the in-time deposits.

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