UPDATE 1-Qatar sees risks in mixing Islamic, conventional banks

Wed Feb 9, 2011 1:37pm GMT

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* Sees risks in mixing conventional, Islamic banking

* Working on capital adequacy rules for Islamic lenders

(Adds details)

DUBAI/DOHA, Feb 9 (Reuters) - The Qatar central bank said it saw higher risks from conventional lenders operating Islamic units, clarifying a recent ruling which asked commercial banks in the Gulf state to close their sharia-compliant operations. Qatar's central bank earlier in the week asked conventional lenders to close down their Islamic operations amid worries of overlap between the two, in a surprise move that boosted shares of Islamic lenders in the country. [ID:nLDE71503A]

The central bank issued a circular over the weekend providing few specifics on the move and had conventional banks such as HSBC (HSBA.L) saying it would seek clarification on the ruling.

"The directives issued recently ... are based on issues related to supervision and monitoring as well as monetary policy," the central bank said in a statement carried by state news agency QNA.

The central bank said mixing Islamic and conventional banking could lead to difficulties in financial reporting, adding that the authority was working towards creating separate capital adequacy rules for Islamic lenders in Qatar.

The order is effective immediately but gave lenders a grace period until Dec. 31 to comply with the new rules. (Writing by Dinesh Nair)