Mini Islamic banks 'face big challenges'
Manama, December 11, 2012
The small to medium sized Islamic financial institutions will find it really difficult to combine the increased capital requirements with the ability to participate in the market, said a top banking expert.
"The larger and often more lucrative deals are even now frequently beyond the reach of Islamic banks, and without major changes this will become more acute, the Central Bank of Bahrain (CBB) Governor Rasheed Al Maraj was quoted as saying in the Gulf Daily News, our sister publication.
Al Maraj was giving his keynote speech at the opening of the 19th edition of the World Islamic Banking Conference (WIBC 2012) at the Gulf Convention Centre yesterday.
According to him, there are a number of steps which need to be taken to achieve this. "The first is to build a range of Islamic institutions which are well capitalised, continuously highly profitable, and which have a balance sheet size which places them within the top 10 in their sphere in the world," he added.
"There are simply too many small to medium sized Islamic financial institutions. The risks inherent in that scenario are clear - Islamic banks cannot play with the big boys," he pointed out.
Al Maraj said the personal interest and a local or regional mindset must be replaced with a big picture mentality. "A mentality which emphasises and works towards the global contribution Islamic institutions can make for the benefit of all," he noted.
"Acquisitions and mergers have been discussed many times, but this has been a slow and cumbersome path," observed the banking expert.
"It is no longer appropriate to have only small, local, financial institutions which are fundamentally and practically restricted in terms of the markets in which they can compete and the deals they can underwrite," he said.
"A further challenge is that the business model has to change. I have spoken about the over-reliance on a model built on real estate. A business model has to adapt to the changing environment in which it operates," remarked Al Maraj.
"Many will ask - what has Bahrain done to turn these desires into reality?" he added.
"The CBB has successfully worked with many stakeholders to encourage and facilitate mergers. This year, one of our Islamic banks successfully completed the acquisition of a conventional bank. Within the next few weeks three of our Islamic banks will merge to become one," he noted.
"Shortly after that we anticipate the merger of two other banks. We continuously work quietly and effectively behind the scenes to influence, persuade, and guide licensees to grow and develop," he said.
"I hope my words will encourage an increase in prompt and practical actions which will transform the Islamic financial industry from a growing, developing aspect of the world economy into a world leader in its spheres of influence in the very near future," he added.-TradeArabia News Service