Basel reserves rule 'to hit smaller banks'
Manama, April 1, 2013
The international regulations demanding that banks increase their reserves over the next few years could see smaller institutions in the Middle East and across the developing world killed off, said Ithmaar Bank chairman Prince Amr Mohammed Al Faisal.
Speaking after the bank's annual meeting yesterday, Prince Amr pointed out that global regulations under Basel III, requiring banks to hold greater reserves, would not only suffocate smaller banks in developing economies but also damage growth, reported the Gulf Daily News, our sister publication.
"These tighter rules on bank reserves are a case of shutting the door after the horse has bolted," he said.
"There was nothing wrong with the Basel II regulation that was in place before the financial crisis of 2007 and 2008. You can have all the regulations you want but if the regulators are asleep at the wheel, then you will get a disaster and that is what happened," he noted.
"Tighter rules might be acceptable to large Western banks but in the developing world they will not work for the common good," said the Ithmaar chief.
"In the developing world Basel III will stunt the recovery. I believe these regulations should be abandoned and I think they will be. Regulations are no good unless they are properly regulated. That did not happen under Basel II and there is no reason to believe these tighter regulations will make any difference," he added.
Ithmaar Bank shareholders threw their weight behind the bank's plans to increase its focus on core banking activities while working towards restructuring its investment portfolio at the meeting.
Prince Amr said this is in line with the bank's commitment to becoming the region's premier Islamic retail and commercial bank.
"The bank is on the right track following its reorganisation, in April 2010 with its then wholly-owned subsidiary, Shamil Bank, and its subsequent transformation into an Islamic retail rank," said Prince Amr.
"Ithmaar Bank's core banking business on a standalone basis has done consistently well. We are posting a 26 per cent year-on-year growth in financing assets and a 31 per cent growth in customer funds.
"Our post-April 2010 reorganisation and retail focus has resulted in an 80 per cent surge in new customer relationships. In fact, we grew our customer base by more than 18,000 new relationships in 2012 alone, which is about 20 per cent of our present total built over a 30-year history."
According to Prince Amr, corporate banking was breaking new ground in Saudi Arabia.
"The weighted average tenor of Mudaraba deposits has almost doubled since Ithmaar's transformation, while at the same time we were able to, since then, significantly reduce the financing costs, indicating a growing investor confidence," he said.
"Looking inwards, we have introduced several measures such as cost rationalisation, strengthening our internal controls and enhanced our reporting, financial and risk management as well as audit frameworks," he added.-TradeArabia News Service