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Friday, 24 February 2012

Islamic banks need mergers to fill Western funding hole Read

LONDON: Small and medium-sized Islamic banks may need to merge if they want to become bigger regional players capable of filling the funding hole left by shrinking Western banks, the head of Islamic finance at Deutsche Bank, told Reuters.

"There are mismatch challenges," Salah Jaidah said on the sidelines of the Euromoney Islamic finance summit in London.

"Their size, their appetite for long term funding, their ability to finance at competitive pricing. I see this as a big challenge and not happening already now," he added.

Most Islamic banks in the Middle East and North African region hold less than $13 billion in assets. Conventional banks, by comparison, hold an average of $38 billion in assets, a report by Ernst and Young estimated.

In the past, said Jaidah, it was the international banks which led oil and gas development and infrastructure projects in the region because they had the balance sheet, pricing mechanisms and appetite for long term funding.

Whilst Islamic banks might not immediately be able to face the challenge, Jaidah believes that within time they will be able to reposition themselves.

"They might raise capital, might have more competitive prices and ultimately there might be some mergers between small-to-medium sized banks who want to become bigger players regionally."

The Gulf Cooperation Council area has over 100 Islamic banks, ranging from Al Rajhi Bank of Saudi Arabia with a $25 billion market cap to small unlisted lenders, a Deutsche Bank report published in November said.

Deutsche Bank selected a list of potential winners which included Al Rajhi -- the world's largest Islamic bank -- and Alinma bank in Saudia Arabia, AMMB Holdings in Malaysia and Bank Mandiri in Indonesia.
The idea of a so-called Isla
mic "mega-bank" has already been touted in the region by Bahrain-based Al Baraka banking group .

READY TO REPOSITION

Islamic finance prohibits the lending of money for interest and other activities such as speculation that violate religious principles.

Deutsche Bank, which first established a presence in the UAE in 1999, says that despite the current global economic turmoil there are still opportunities within the industry.

"With the changes taking place in MENA and our eagerness to reposition ourselves as a lead player within the industry, I expect that the portion of profit and earnings will be lucrative and will grow year after year," said Jaidah.

He sees encouraging signs from Oman, home to around 3 million Muslims, where the central bank last year reversed its secular stance on finance, allowing Islamic banks and subsidiaries to establish themselves in the country.

There might also be new geographic openings in North Africa, following the upheaval in the region and countries such as Turkey where the government plans its first-ever issue of Islamic bonds this year.

Globally, Islamic bond issuance rose to $23.3 billion last year from $13.9 billion in 2010, according to Thomson Reuters data.

On the corporate front, Deutsche Bank, which has advised on deals including Saudi Aramco Total Refining and Petrochemical Company's (SATORP) $1 billion sukuk also sees more non-Islamic corporates tapping Islamic finance.

"Now more than ever we see a growing demand from conventional corporates for sharia structures," said Jaidah.

Dubai shopping mall developer Majid Al Futtaim, which is the sole franchisee for Carrefour in the Gulf, hopes to raise between $350 million and $500 million from its debut sukuk offering.

Emirates airlines said it is looking at the Islamic finance market to fund aircraft deliveries as international banks back out of plane deals. Goldman Sachs is also planning a $2 billion sukuk.

Dana Gas has appointed Deutsche Bank to advise on its $920 million convertible sukuk, three sources told Reuters in January, in a move to address investor concern over how it will repay the Islamic bond.

Jaidah would not comment on the deal.

Deutsche Bank estimated in a report in November that Islamic finance would almost double to $1.8 trillion in assets by 2016 as stagnant conventional lending pushed companies to seek alternative financing methods. 
(Editing by David Cowell)

(TheDailyStar, 23 Feb2012)


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Islamic banking set to triumph in Oman



MUSCAT — Adnan Ahmed Yusuf, Chief Executive Officer of Al Baraka Banking Group and Chairman of the Union of Arab Banks, said that the Islamic banking in the Sultanate will spread and will achieve more than 20 per cent of the domestic banking during the next five years.


Adnan Yusuf revealed in an interview with Oman Economic the interest of ABG to enter the Islamic banking sector in the Sultanate but due to factors related to the policy of the group towards the form of ownership, Al Baraka Group is currently considering the possibility of managing a bank in the Sultanate or engaging in Islamic finance if the new banking laws permit so.

Adnan Yusuf said that the Sultanate’s late entry to the field of Islamic banking is a positive factor, as the experience of Islamic banking has reached a state of maturity and the Omani market will benefit from the experiences of other countries that preceded it in this area.

He believed that the conditions of the Arab banking sector, whether Islamic or the traditional one are in good condition as they are not conflicting with what is happening in the international markets. The European countries, despite the crisis they are currently facing, they will be able to get out of the bottleneck, although it takes time to achieve this.

“For the ABG, we are currently available in 15 countries and we have our own policy in the form of ownership. We have our own way of practicing business as it is a must that the bank that we are collaborating with carries the name of the group and that the administration is in the hands of the group and we have the majority stake in the bank’s capital,” he said.

“We have the desire to assume the management of banks, as we have extensive experience in Islamic banking. We now have 450 branches in various parts of the world in 15 countries and 10,000 employees work in these branches in a volume business of $18 billion. We have the option of managing a bank in the Sultanate, but this is not the only option we have, we have another proposals. We now await the new laws, which are about to be issued in the Sultanate after allowing to practice Islamic banking for the first time and we’ll see whether these laws will allow us to exist across the Islamic finance companies,” he said.

“In general, all the options are on the table for us and for the past six or seven years, we have made studies of the Central Bank of Oman and the views of business on the Islamic banking, therefore our relationship is very old and good in the Omani market,” he said.

“I expect the success of this activity in the Sultanate, as it is known that the Omani people are conservatives and always have the desire of having Islamic banks in the country. I think the mistakes and risks will be less as there is the necessary expertise. It can request expertise in Islamic products and can find them easily, especially as some neighbouring countries to the Sultanate such as the UAE has gained much experience in Islamic banking,” he added. Expectations points out that the rate of growth of the global economy in the current year will reach about 3.4 per cent, and this calls for a kind of optimism despite the presence of many of the negative warnings.

What the world needs now is to restore confidence in the ability of the international financial system to take corrective actions sufficient to remove the fears of investors and to stimulate consumer for spending incentives to attract the owners of cash reserves to invest in the infrastructure of the developed economies.

This will help economies in trouble and will make them work to streamline their programmes that have been developed to solve debt and budget deficits.


(OmanDailyObserver, 24 Feb2012)


---
Alfalah Consulting - Kuala Lumpur:
www.alfalahconsulting.com
Consultant/Trainer/CEO:
www.ahmad-sanusi-husain.com
Islamic Investment Malaysia:
www.islamic-invest-malaysia.com

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