Islamic banks in the country had small capital base then and that was another reason why their conventional counterparts were permitted to offer Islamic banking services, said Abdullah bin Khalid Al Attiyah.
It was during his tenure as QCB governor that commercial banks were allowed to set up Islamic windows and branches.
"The managements of Islamic banks need to improve their efficiency and competence," Al Attiyah obliquely hinted in an extensive interview with Al Sharq.
He, however, did not comment on the recent decision of the banking regulator to close the Islamic operations of commercial banks by the year-end.
He said when he was at the Qatar National Bank years ago the percentage of bad loans had increased so much that he had to think of alternatives to diversify the bank's income sources and Islamic banking emerged as one of the options.
A formal request was made to the Qatar Monetary Authority (the QCB's predecessor) to allow the QNB to have Islamic arm but the application was turned down, said Al Attiyah.
About bad loans, Al Attiyah said the banks dispensing credit should rely more on their own judgment and risk managing abilities than on the directives of the QCB.
The banks should try and learn more about potential borrowers and assess how serious they are in seeking a loan as also judge their repayment capacity.
The CEOs of some banks draw double the salary of the QCB governor so they should be in a better position to assess risks, said Al Attiyah.
The QCB, he said, should be the licensing authority and the regulator of the banking sector since it has more regulatory experience.
But Al Attiyah raised doubts over the autonomy of the QCB itself by saying that the law which regulated it allowed the finance minister to become the chairman of its board while he is chairman of the board of a bank (a reference to the QNB).
Al Attiyah did not blame higher inflation on property rents alone and said a mix of factors was at play and that included the pegging of the riyal to dollar, rising imports and public spending on public projects.
It is wrong to lay the blame for galloping prices on the QCB, he said.
The regulator's strategy to absorb surplus liquidity of the banking sector to rein in inflation has a limited impact because of the massive economic development taking place in the country.