Jordan Islamic Bank, the country's largest Islamic lender, expects double-digit growth this year as it taps fast-rising demand for Sharia-compliant products in an otherwise sluggish overall market, its CEO said.

The bank, with total assets of JD2.47 billion ($3.5 billion), has capitalised on higher demand by depositors seeking a safe haven in Islamic banks perceived as less affected by the financial crisis, said Musa Abdelaziz Shihadeh, chief executive and deputy chairman of the bank.

'The crisis has made depositors feel more confident about going to Islamic banks and this why we have seen a surge in deposits,' said Shihadeh, whose bank is the largest and the oldest among three Islamic banks operating in Jordan.

The bank, whose main shareholder is Bahrain-based AlBaraka Banking Corp, has since it was set up in 1979 executed JD5.3 billion of Murabaha or cost-plus financing, which is widely used to finance the purchase of assets from real estate to machinery.

Shihadeh said the bank saw deposits rise by JD305 million in 2009 - a 16 per cent rise from the previous year.

Islamic Sharia-compliant financing and investment, which account for about 60 per cent of Jordan Islamic Bank's assets, grew 10 per cent in 2009 to JD1.56 billion. The bank bucked the trend in a tough economic environment in Jordan where the banking sector suffered in the global downturn.

Murabaha transactions that fulfil Islam's demand that all deals must involve real economic activity were at the core of the bank's fast-growing niche market, Shihadeh said.

Among the faster-growing products achieving 22 per cent growth in 2009 was also leasing or Ijarah Muntahiyah Bitamleek (a lease where a debtor acquires at the end of the lease).

The year 2010 should see steady double-digit growth in the bank's assets, deposits and investments, Shihadeh said.

Jordan Islamic Bank's ability however to expand financing by utilising excess funds would be given a boost when the authorities speed up a legal framework that allows issuance of sovereign Islamic bonds or sukuk, Shihadeh said.

'The higher returns we are giving are attracting more deposits which in fact increases the burden on us to invest in the absence of a law for sukuk. The legal changes will enhance our involvement in the economy,' Shihadeh said.

Islamic banks must first buy an asset which they then sell to the borrower, but current Jordanian laws do not allow the government to forgo title to assets or property when they borrow as required for Sukuk under Islamic-complaint Sharia terms.
   
Jordan said it was planning to iron out legal impediments soon and Islamic bankers say this will enable them to offer the government more favourable borrowing than conventional banks, especially for privatisation and infrastructure projects.

'We hope these obstacles are lifted soon to ease the work of Islamic banks and allow them to invest more,' he said.

A move by Jordan's Central Bank to apply the Islamic Financial Services Board's (IFSB) standards on their capital adequacy ratios would also help Islamic banks to expand their financing ability. Due to the absence of Islamic compliant paper, only conventional banks now enjoy exemptions for investing in interest-based government Treasury-bonds and bills.

'We are not asking for any privileges but to be given equal treatment with other banks,' Shihadeh added.

Islamic banks assets already amount to around 11.6 per cent of total assets of the domestic banking system and with credit facilities accounting for 15 per cent of total bank credit.-Reuters