‘Banks poised for growth in aftermath of financial crisis’

 

Bankers and experts said making use of the still largely untapped resources of Islamic finance and banking is an optimal solution in light of the global economic downturn.

Islamic banking and finance proved to be the least vulnerable to losses and the least affected by the negative impact of the global financial crisis and promises major opportunities for growth, they said at the inauguration of the first Islamic Finance and Investment Forum for the Middle East, held on the eastern shores of the Dead Sea at the beginning of march.

“In this challenging global economic and financial environment, Islamic finance has remained dynamic with a steady pace of innovation and growth,” Central Bank of Jordan (CBJ) Governor Umayya Toukan said at the inauguration of the two-day forum.

“The accelerated development of the Islamic financial markets and the supporting international Islamic financial architecture as well as the trend towards greater liberalisation have enhanced the integration of Islamic finance into the international financial system,” he added.

In order for Islamic finance to truly become international, allowing its share to go beyond its present level of around 1 per cent of all global banking activities, Toukan stressed that its standards should be consistent with international benchmarks such as Basel II.

Fouad M. Alaeddin, Middle East managing partner head of markets, told The Jordan Times that Islamic banking has great potential, especially since the sector was less impacted by the crisis than the conventional banking sector.

“There is a huge potential for growth in the Islamic banking sector. It is safer as it is asset-based and does not rely on derivatives, etc… and it also takes share in the risk. In addition, the whole concept of Islamic banking goes with stricter banking regulations, which seems to be the trend after the crisis,” Alaeddin said in remarks following the inauguration of the event.

“The sector is still somewhat new as it is about 30-40 years old and is still untapped,” he added.

According to Minister of Finance Mohammad Abu Hammour, the Islamic banking sector witnesses an annual growth rate of 10-15 per cent and there are currently over 300 Islamic banks in more than 50 countries. There are also more than 250 investment funds that operate in accordance with Sharia rules, with total assets of about $850 billion.

In Jordan, there are currently two Jordanian Islamic banks with assets amounting to around 11 per cent of the total assets of the banking system, deposits with a market share of around 12.5 per cent of total bank deposits, and credit facilities accounting for around 15 per cent of total bank credit, according to Toukan.

Two new Islamic banks were recently granted licences to operate in Jordan: Jordan Dubai Islamic Bank, which started its operations in Jordan in January 2010, and Al Rajhi Bank from Saudi Arabia, which is expected to start operating in the next two months, Toukan added in his speech.

In a speech read on his behalf by the ministry’s secretary general, Abu Hammour stressed that the developments the Islamic banking sector has witnessed in the past 40 years are “pioneering” and “unprecedented” in the modern financial market.

According to Abu Hammour, experts agree that Islamic banks, when compared to conventional banks, managed to avoid the consequences of the global financial crisis that affected many countries and caused many banks to collapse.

The minister called on Islamic banks to seize the opportunity created by the crisis by creating international investment banks that provide a new vision to the world and continue development and modernisation in their services.

It is also important to foster and strengthen the Islamic financial industry to be able to maintain its growth and to utilise the money available in the Arab and the Muslim worlds, he added.

In a speech at the forum, Moussa Shehadeh, deputy chairman of the Jordan Islamic Bank board of directors, reviewed obstacles facing the Islamic banking sector and called for supporting it and taking the “special” situation of these banks into account.

In this regard, Toukan said the Islamic banks in Jordan should have special treatment in terms of monitoring and international auditing standards, adding that the CBJ is working on these aspects so the Islamic banking industry assumes a larger role in the global banking system, the Jordan News Agency, Petra, reported.

He said if the situation necessitates having special legislation for the Islamic banking industry, the CBJ is ready to look into that.

Experts from several countries are taking part in the event, where several issues of concern to Islamic banking and finance will be discussed.

source : jordan today

Islamic banking defies crisis with global launches

More Islamic banks and financial products have been launched worldwide since late in 2008 despite the global banking crisis that restricted conventional banks from doing so.

Joseph DiVanna, managing director of UK-based consulting and advisory firm Maris Strategies, said in this month’s issue of The Banker that Shariah-compliant banks were performing better than conventional banks.

Islamic banks focus on ethical investing; speculative financing and trading is forbidden. This makes Islamic banks highly dependent on customer deposits for their liquidity.

“This in turn makes them less susceptible to changes in credit markets,” according to DiVanna.

South Africa stands to benefit from Muslim investors who want new markets in southern Africa, which presents one of the best platforms on the continent for growth in Islamic banking products following the regulatory restrictions that were put on these products.

This could be the reason Absa Capital, the investment banking division of Absa, launched South Africa’s first Shariah-compliant equity-linked exchange traded fund (ETF) on Thursday.

The banking group said that the initial public offering for the NewFunds Shariah Top40 index ETF had opened on Monday. The ETF will be listed on the JSE on April 6.

The Shariah Top40 index ETF tracks the FTSE/JSE Shariah Top40 index, jointly established by London’s FTSE International and the JSE.

Vladimir Nedeljkovic, head of ETFs and index products at Absa Capital, said that the Shariah Top40 index ETF was a first for South Africa. It was expected to redefine the Muslim investment landscape in the country.

“This ETF is a cost-efficient, transparent and easy-to-access investment product that conforms to the principles of Shariah law,” said Nedeljkovic.

He expected the product to do well in a market that urgently required more local Islamic investment products to service the estimated 400 000 Muslim households in South Africa.

“The Shariah Top40 index ETF provides investors with diversified exposure to the broad market through investing in one Shariah-compliant ETF share and earning a market related performance,” he said.

Absa Capital’s NewGold ETF, the biggest ETF in the South African market with about R9 billion in assets, is also Shariah-compliant. It has been approved by the Shariah supervisory board.

“Islamic banks were generally not impacted by collateralised debt obligation or asset backed securities,” DiVanna said.

Since November 11, new Islamic banks had been formed, including the United Arab Emirates’ first Islamic commercial bank, the Ajman Bank.

DiVanna added that while banks in the developed world had curtailed their expansion, 23 Islamic banks had extended their operations into new countries such as Botswana, Iraq, Kenya, Malaysia, Pakistan, South Africa, Sudan and Syria.

Qatar National Bank opened a full-service branch in Singapore and the Arab Bank opened a branch, specialising in Islamic banking, in Qatar.

South Africa has been offering Islamic banking since 1989 and all big four banks are developing or offering Islamic products.

 

source : busrep