Abu Dhabi Islamic Bank and Canadian University of Dubai partnered to support the community in education & financial services

Dubai, February 20, 2012: In a move to make higher education more accessible to local and international students, Canadian University of Dubai (CUD) and Abu Dhabi Islamic Bank (ADIB) have formed an innovative partnership to provide students with flexible new options for education financing.

The partners announced details of the new program at the official signing of a Memorandum of Understanding (MoU) at the CUD Red Theatre between Mr. Buti Saeed Al Ghandi, CUD Chancellor, and Mr. Waheeb Khazraji, Head of HR at ADIB.

The key innovation in the program is ADIB’s issuance of Sharia-compliant financial education services, not normally provided in the education sector, that will allow for more flexible repayment plans at extremely low profit level rates. Additional benefits of the partnership include opportunities for top CUD students to be accepted in ADIB’s leadership program and student participation in an ADIB Executive Speaker Series at CUD.

In return, CUD will become a key service provider in ADIB’s extensive staff educational programs. Bank employees will enroll in CUD’s Masters and Bachelor programs at a discounted rate, helping them to advance their career opportunities and attain their personal educational goals. CUD’s flexible delivery schedule allowing students to study on weekends and evening allows for the employees to work and study simultaneously.

Buti Saeed Al Ghandi, Chancellor of CUD said: “We, at the Canadian University of Dubai, are very pleased to announce a partnership with the leading bank in Islamic Finance, Abu Dhabi Islamic Bank. This new partnership will allow both institutions, as respective leaders in their field, to cooperate for the betterment of our respective communities and the entire United Arab Emirates.

This includes innovative student financing options, unique to CUD, and special educational offers for ADIB employees. We are very excited by this historic agreement, and look forward to sharing the benefits with our community.”

Waheeb Khazraji, Head of HR at ADIB, said: “This agreement comes in line with our commitment to support education in the UAE and make it accessible to all, as it is considered an essential element in supporting the economic growth of the country. It also reflects our efforts to provide more flexible financial solutions to students, in order to help them in covering their higher education expenses.

Under this agreement, ADIB staff will be able to attend UAE’s first post-graduate program in Islamic Banking, and this comes as part of our commitment to develop our UAE national workforce to improve the Islamic banking sector and contribute to the development process in our beloved country.”

The initiative is part of a wider plan by CUD to encourage Emiratis and expatriates to further their education. In recent weeks, a series of Open Days has been held to showcase the university and the significant new initiatives it has launched to allow all students to achieve their educational goals. CUD works hard to accommodate the goals of both its part-time and full-time students and offers Master and Bachelor courses on evenings and weekends in addition to the standard daytime courses. The result is that students are able to study in an active and vibrant campus seven days per week.

Dr. Karim Chelli, President of CUD, added : “This partnership with ADIB is going to benefit CUD students and ADIB employees in many different ways. A critical component of the partnership for us is the introduction of a more flexible and innovative student loan program to complement our existing scholarship and bursary programs. Offering a full array of options for education finance is critical to CUD so that our students can fully focus their energies on their studies and excel in their future careers.

We have a great scholarship program for the meritorious students, and a bursary program for students in need. However, the missing piece for us was a comprehensive financial support program for students that included affordable student loan arrangements, and now we have that thanks to our partnership with ADIB.”

In attendance at the ceremony was HH Sheikh Mohammed Bin Maktoum Bin Juma Al Maktoum, who is an MBA student at CUD.


QNB Group moves up 77 places to 114th place amongst the world's top 500 banking brands

The Banker’s Top 500 Banking Brands report was published on 1 February 2012 and featured a number of leading banks and financial institutions from the Middle East and North Africa, most notably QNB Group which rose to the status of the region’s most valued banking brand.

The survey is conducted every year by The Banker magazine, an affiliate publication of The Financial Times in partnership with Brand Finance, the leading specialist in the field of brand valuation research.

In the 2012 survey, QNB leaped five places to become the number 1 brand in the MENA region, and moved up 77 places to 114th place amongst the world’s top 500 banking brands.

The process of assigning value to each brand takes into account the bank’s size, geographical presence, reputation, gearing and brand rating. According to the brand rating calculator used in the survey, QNB is classified as an AA+ brand, or a very strong banking brand.

This rating is independent of ratings assigned by credit rating agencies and represents only the health and future growth potential of the brand in intangible indicators and brand value.

QNB Group was able to deliver outstanding financial results in 2011, driven by on-going expansion across the range of its activities both domestically and internationally along with the adoption of a conservative approach to risk management that resulted in further enhancing the Group’s leading position amongst financial institutions in the Middle East and North Africa region.

QNB Group’s Net Profit for 2011 exceeded QR7.5bn, representing an increase of 32% over 2010, with Total Assets increasing by 35% to reach QR302bn. The Bank was also able to maintain a low non-performing loans ratio at 1.1% of total loans, which is considered the lowest amongst banks in the Middle East and North Africa.

Total operating income increased to QR10.2bn, up by 34% compared to 2010, while Net interest income and income from Islamic financing activities increased substantially, up by 37% to reach QR7.8bn. The efficiency ratio (cost to income ratio) improved to 15.7%, compared to 17.0% in 2010, one of the best ratios among financial institutions in the MENA region.

QNB Group’s capital adequacy ratio also increased to 22.0% in 2011, far higher than the regulatory requirements of Qatar Central Bank and Basel Committee. The Group is keen to maintain a strong capitalisation in order to support future strategic plans.

QNB Group’s market capitalisation also increased by 34% during the year to reach QR96.7bn at year-end 2011.

QNB Group’s leading role in the banking sector and the high quality of its assets, along with its capabilities to achieve sustained growth in all activities, are demonstrated clearly in its credit rating, with Standard & Poor’s, Fitch and Moody’s affirming the Bank’s ratings during 2011, which are among the highest in the region.

Also, Capital Intelligence upgraded the Bank’s Financial Strength Rating from A+ to AA- and affirmed all other ratings in recognition of QNB’s sound financial position, high asset quality and leading role in the banking sector.

In 2011, QNB Group completed the acquisition of a controlling stake of 70% in Bank Kesawan in Indonesia, a deal which boosted the Group’s presence in South East Asia that also includes a branch in Singapore. QNB also launched its operations in Lebanon and South Sudan through the inauguration of its branches in Beirut and Juba.

A fifth branch was also established in Oman, as part of the Group’s strategy to expand its customer reach and provide them with global best practices in banking and financial services. With these expansions, QNB Group currently operates in 24 countries around the world through 334 branches, offices, subsidiaries and associate companies, and 7000 staff worldwide.

In January 2012, the Bank announced a Partnership Agreement with the Morocco-based Union Marocaine des Banques (UMB), with plans to acquire a majority stake of its capital.

A new 5-year strategic plan was also approved aiming to reinforce QNB’s position in the region and establish it as a leading icon of the financial sector in the Middle East and Africa.



Abu Dhabi Commercial Bank PJSC reports full year 2011 record net profit of AED 3,045 MN, recommends cash dividend of 20%


Abu Dhabi, 26 January 2012 – Abu Dhabi Commercial Bank PJSC (“ADCB” or the “Bank”) today reported its financial results for the year ended 31 December 2011, subject to approval by the UAE Central Bank.

Annual financial highlights

Delivering strong performance with record levels of income, net profit and improved margins:

− Net profit at AED 3,045 mn, compared to AED 391 mn in 2010

− Total net interest income and Islamic financing income at AED 4,688 mn, up 27%

− Operating income at AED 6,069 mn, up 21%

− Operating profit before impairment allowances at AED 4,006 mn, up 20%

− Net interest margin at 3.10% compared to 2.57% in 2010

Strengthened capital adequacy, comfortable liquidity levels and improved loan to deposit ratio:

− Capital adequacy ratio at 22.51% compared to 16.65% in 2010

− Liquidity ratio at 22.13% compared to 17.45% in 2010

− Loan to deposit ratio at 113.53% compared to 115.68% in 2010

− Remain a net provider of liquidity to interbank markets, AED 18.7 bn as at 31 December 2011

Improved asset quality and disciplined cost management

− Non-performing loan ratio at 4.6% compared to 11.1%* as at 31 December 2010 (*5.8% excluding Dubai World exposure)

− Provision coverage ratio at 80.0% compared to 44.1%* as at 31 December 2010 (*69.6% excluding Dubai World exposure)

− Impairment allowances on doubtful loans and advances, net of recoveries amounted to AED 2,082 mn in 2011 compared to AED 2,860 mn in 2010

− Portfolio impairment allowance balance was AED 2,059 mn and 1.59% of credit risk weighted assets as at 31 December 2011. The UAE Central Bank Directive requires banks to increase the level of collective provisions to 1.50% of credit risk weighted assets by 2014

− Exposure to investments in CDS were substantially reduced from AED 1,457 mn as at 31 December 2010 to AED 55 mn as at 31 December 2011

− Cost to income ratio was 33% in 2011 compared to 31% in 2010

Commenting on the Bank’s strong performance, H.E. Eissa Al Suwaidi, Chairman of ADCB said “In 2011, the Bank continued to build on its strong position in the market and we are very pleased to report a net profit of AED 3,045 mn. This success confirms the effectiveness of our strategic pillars, which have proven fundamental in supporting and implementing our business objectives.

The Bank remains committed to Emiratisation, actively recruiting and developing national talent, representing 41% of ADCB employees as of 31 December 2011, compared to 36% in 2010. As we move into 2012, we reaffirm our commitment to contribute to the development of the UAE Banking Sector as a whole and to continue to generate superior returns for our stakeholders.

In the light of 2011 record financial results, the Board of Directors have recommended a 20% cash dividend to our shareholders of AED 1,119 mn equivalent to 37% of net profit.”

On behalf of the Board, I would like to extend our most sincere appreciation and gratitude to His Highness Sheikh Khalifa Bin Zayed Al Nahyan, the UAE President and Ruler of Abu Dhabi, to His Highness Sheikh Mohamed Bin Zayed Al Nahyan, Abu Dhabi Crown Prince and Deputy Supreme Commander of the UAE Armed Forces, to His Highness Sheikh Mansour Bin Zayed Al Nahyan, Deputy Prime Minister and Minister of Presidential Affairs, the Chairman and Governor of the UAE Central Bank for their continued support for ADCB and the future development of the UAE economy. Last but not least, I would like to thank our valued customers and the members of ADCB executive management team.”

Ala’a Eraiqat, Member of the Board and Chief Executive Officer commented on the results; “2011 was a momentous year for ADCB. We continued to deliver strong performance with record levels of income and profits for the year while remaining prudent in our risk management approach. During 2011, the Bank significantly strengthened its capital position, improved liquidity levels and funding profile, enhanced risk management capabilities and operating efficiency.

We continued to pro-actively manage credit quality and we are pleased to see signs of improvement in asset quality with reported NPLs reducing to 4.6% in 2011, compared to 11.1%* (*5.8% excluding Dubai World exposure) in 2010.

In the second quarter of 2011, in line with our UAE centric growth strategy, ADCB sold its stake in RHB Capital Berhad in Malaysia resulting in an AED 1.3 bn gain and improved the Bank’s overall capital and liquidity levels, which contributed to an increase in the Bank’s ratings by Standard and Poor’s in June 2011 to A/A-1.

The recent acquisition and integration of the Royal Bank of Scotland’s UAE Retail Banking, Wealth Management and SME Businesses were completed in the third quarter of 2011 and have further consolidated our position as one of the leading players within the UAE market. These successful initiatives have proven our ability to capitalise on value-adding opportunities for our shareholders.

In November 2011, the Bank completed the successful issuance of an Islamic Sukuk to the market, which was the first for the Bank and only the second Islamic issue by a conventional bank in the GCC. In February 2011, we made our second bond issue in the Swiss Franc market which was also positively received by investors. The strong appetite for ADCB risk confirms the trust that global investors have in ADCB.

We continuously strive to adopt global best practices to improve governance, efficiency and risk management across the Bank. Throughout 2011, we have continued to invest in our businesses in particular cash management, trade finance, treasury systems and also relaunched our Islamic Banking Business.

Understanding our customers’ needs and in line with our commitment to providing the best and most innovative products and services to the market, we recently introduced free banking services for our retail banking customers, removing charges for a wide variety of personal banking services.

As the first bank to introduce Free Banking in the UAE, we have gone over and above the recent Central Bank Directive on Retail Banking fees and charges. This pioneering move has renewed our pledge to be a socially responsible bank, focusing our efforts to optimise our products and services in a way which enriches the greater community.

We also recently launched the Offshore Banking service through our Jersey branch and during 2011 we expanded our global reach through a strategic alliance with Bank of America Merrill Lynch and continue to reap the benefits of this partnership.

On behalf of the Executive Management Team, I would like to express our sincere appreciation and gratitude to all of our shareholders and the Board of Directors for their support, our employees for their hard work, and our valued customers for their ongoing loyalty and trust.

The Bank is well positioned to take advantage of future improvements in the economy and we move forward in 2012 by continuing to focus on our strategic objectives and building a stronger, more resilient ADCB for the future.”

Awards in 2011

‘The Best Retail Bank in UAE’ award for the fourth year in a row by The Asian Banker

The World Finance Award for ‘Best Corporate Governance’ in the UAE for the second year in a row

‘The Best SME Account’ award by Banker Middle East for the Bank’s “BusinessEdge” suite of products offered by the SME Banking Division

‘Best Credit Card Award’ for LuLu credit card and ‘Best Co-branded Card Award’ for Etihad Guest Above credit card, presented at the Smart Card Awards Middle East 2011 ceremony, part of the Cards Middle East Conference and Exhibition

‘Best Commercial Bank’ award at the Banker Middle East Industry Awards

Ranked number seven, in ‘The World’s Safest Banks 2011 in the Middle East’ by Global Finance

‘The Financial Institution of the Year’ at the Allied Compliance Consultants third Annual International GRC and Financial Crimes Conference and Exhibition

‘The Most Improved Islamic Bank in the UAE’ by the Global Islamic Finance Awards (GIFA) committee, presented at the Oman Islamic Economic Forum

About ADCB:

ADCB was formed in 1985 and as at 31 December 2011 employed over 4,000 people from 49 nationalities, serving approximately 455,000 retail customers and over 34,000 corporate and SME clients in 48 branches, 4 pay offices in the UAE, two branches in India and 1 offshore branch in Jersey. It is the third largest bank in the UAE and second largest in Abu Dhabi by assets, at AED 184 bn as at 31 December 2011.

ADCB is a full-service commercial bank which offers a wide range of products and services such as retail banking, wealth management, private banking, corporate banking, commercial banking, cash management, investment banking, corporate finance, foreign exchange, interest rate and currency derivatives and Islamic products, project finance and property management services.

ADCB is owned 58.08% by the Abu Dhabi Government through the Abu Dhabi Investment Council. Its shares are traded on the Abu Dhabi Securities Exchange. As at 31 December 2011, ADCB’s market capitalisation was AED 16 bn.

For further details please contact

Corporate Communications

Majdi Abd El Muhdi

E: [email protected]

Investor Relations

Denise Caouki

E: [email protected]


This document has been prepared by Abu Dhabi Commercial Bank PJSC (“ADCB”) for information purposes only. The information, statements and opinions contained in this presentation do not constitute a public offer under any applicable legislation or an offer to sell or solicitation of an offer to buy any securities or financial instruments or any advice or recommendation with respect to such securities or other financial instruments. This document is not intended for distribution in any jurisdiction in which such distribution would be contrary to local law or reputation.

The material contained in this press release is intended to be general background information on ADCB and its activities and does not purport to be complete. It may include information derived from publicly available sources that have not been independently verified.

No representation or warranty is made as to the accuracy, completeness or reliability of the information. It is not intended that this document be relied upon as advice to investors or potential investors, who should consider seeking independent professional advice depending on their specific investment objectives, financial situation or particular needs.

This document may contain certain forward-looking statements with respect to certain of ADCB’s plans and its current goals and expectations relating to future financial conditions, performance and results.

These statements relate to ADCB’s current view with respect to future events and are subject to change, certain risks, uncertainties and assumptions which are, in many instances, beyond ADCB’s control and have been made based upon management’s expectations and beliefs concerning future developments and their potential effect upon ADCB.

By their nature, these forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which are beyond ADCB’s control, including, among others, the UAE domestic and global economic and business conditions, market related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory and Governmental authorities, the impact of competition, the timing impact and other uncertainties of future acquisition or combinations within relevant industries.

As a result, ADCB’s actual future condition, performance and results may differ materially from the plans, goals and expectations set out in ADCB’s forward-looking statements and persons reading this document should not place reliance on forward-looking statements.

Such forward-looking statements are made only as at the date on which such statements are made and ADCB does not undertake to update forward-looking statements contained in this document or any other forward-looking statement it may make.


Qatar Islamic banking directive to set example for other markets

The deadline of Dec. 31, 2011, as per the directive issued by the Central Bank of Qatar (CBQ) in January 2011 requiring the country’s conventional banks which have opened Islamic banking windows to close them down, has passed almost unnoticed.

Despite the initial outcry at the time of the announcement of the directive stressing that it was too arbitrary and the grace period was too tight, there has been no upheaval of the Islamic finance industry in the emirate. Some Islamic bankers are now arguing that the move was required to stem the alleged rampant co-mingling of conventional and Islamic funds at some of the Islamic banking windows, and that the Qatari Islamic banking sector has been successfully re-aligned and consolidated.

The successful implementation of the directive in Qatar could well have implications for other markets in the region and beyond where Islamic banking windows are prevalent. The clear message of the directive is that dedicated standalone Islamic banks are preferable to half-way houses where co-mingling and all sorts of compromises are possible if not the norm. They also give greater legal, regulatory and Shariah compliance clarity and comfort to those depositors and investors interested in Islamic finance.

The affected banks included the Al-Islami window of Qatar National Bank (QNB), the largest bank in the emirate; Commercial Bank of Qatar; Doha Bank; HSBC Amanah; Ahli Bank; Al-Khaliji Bank and International Bank of Qatar (IBQ), which between them had 16 Islamic banking branches in Qatar.

On Jan. 1, 2012 it became clear that only one such window, Al-Yusr of International Bank of Qatar, was acquired by two local Islamic banks — the retail banking assets and business was acquired by Barwa Bank, the newest of the Qatari Islamic banks, while the corporate banking assets and portfolio was acquired by Qatar Islamic Bank (QIB), the largest Islamic bank in the emirate.

The other banks had wound down their Islamic banking window operations complete with removing all signage and of course not opening any new accounts or businesses. Existing Islamic banking customers were in some cases given the option of switching to the banks’ conventional banking business or in other cases to continue payments until affected Islamic financing facilities matured.

An unrepentant CBQ Gov. Sheikh Abdullah bin Saud Al-Thani as late as mid December 2011 warned the affected banks that the directive was “irreversible” and that they must comply with its provisions. In his keynote speech to the 8th International Conference on Islamic Economics and Finance (ICIEF) which was held in Doha in December 2011, Al-Thani articulated the reasons behind the central bank’s directive, which he confirmed is irreversible.

The Islamic Banking Windows, according to Gov. Al-Thani, made it difficult for the banking regulator to effectively implement its monitoring and supervision of these windows.

This issue could not have been highlighted more aptly during the acquisition of Al-Yusr’s Islamic Retail Banking business. As the first such transaction to be closed in the region, albeit under Qatari law, there were some legal and other regulatory challenges which UK law firm, Eversheds, which acted for Barwa Bank, successfully navigated through within the provisions of existing Qatari legislation.

“The IBQ window was not a separate legal entity. As such, its assets and liabilities were a part of the conventional bank. We therefore had to consider how best to separate and then package and transfer these assets and liabilities. There were also challenges concerning transition services that were required post completion to serve the transferring customers,” explained Amjad Hussain, partner and head of Islamic Finance at Eversheds, in a recent interview.

The central bank also found that the coupling of conventional and Islamic banking activities at the same institution, undermined competition and transparency in the affected banks. At the same time, there is much confusion over the balance sheet treatment of the assets and liabilities of the Islamic banking windows in the financial reports of the conventional banks, which are not separated. As such this has implications for the risk management process of the institution.

Al-Thani gave the thumbs up to the Qatari Islamic banking industry which boasts four Islamic banks — Qatar Islamic Bank, Qatar International Islamic Bank, Masraf Al-Rayan and Barwa Bank. These banks, he added, have a crucial role in the country’s banking sector and economy, in compliance with the objectives of the Qatar Vision 2030 and its first application through the First Strategic National Development Project 2011-2016.

He reminded Qatari Islamic banks of their partnership role in financing economic development and projects in the country, and stressed that he was confident that the Qatari Islamic banks will rise to and are capable of taking up this challenge together with their conventional counterparts. The Islamic banking sector has a 20 percent market share of the total banking industry in Qatar, which has four dedicated standalone Islamic banks.

It was way back in 2005 that the CBQ allowed conventional banks to launch Islamic Banking Units (IBUs), which have contributed to the growth of the sector and to the profitability of the banks, and which have attracted an estimated customer base of just under 100,000.

Eversheds’ Hussain rejects any notion of arbitrariness in the action of the CBQ in issuing the directive. The action, he contended, is “part of a wider process of supporting and shoring up the banking industry in Qatar. You have to look at it in the context of the proactive approach of the central bank during the recession when it helped a number of local banks to remove some of the toxic debts that they had exposure to. The CBQ is also making sure that there are enough opportunities for all the market players.”

Previously, the Islamic banking windows were barely competing because of co-mingling issues and because they were able to offset overheads through the conventional banks. There was a feeling that the market was not as transparent as it could be. In addition to regulatory issues, the central bank had to deal with two separate businesses dealing with different banking activities – Islamic and conventional.

“I believe competition was an issue, because the pure Islamic banks were seen to be at a disadvantage. The Islamic banking windows at the conventional banks were able to use backroom services in their banks. There were also regulatory and corporate governance concerning how manage different banking platforms under one roof which is what the conventional banks were trying to do. This resulted in a culmination of issues which the CBQ is trying to address in its efforts to improve out the banking sector,” explained Hussain.


Bangladesh banks have weak cushion against risks

Bangladeshi banks’ strength in terms of capital to losses is the lowest among the major South Asian countries, according to the first-ever Financial Stability Report (FSR) released yesterday.

The capital adequacy ratio (CAR), which sets the minimum cushion of capital a bank must keep to absorb losses and promote stability, was 9.3 percent in Bangladesh at the end of 2010. The CAR of Indian banking industry was 14.6 percent as of end-March 2010, 14 percent in Pakistan and 14.9 percent in Sri Lanka.

“Banks’ CAR must increase from the present level,” SK Sur Chowdhury, executive director of Bangladesh Bank, told reporters at the launch of the report.

The CAR has to go up to 14 percent under Basel-II requirements. The major three South Asian countries have more capacity than the regulatory need under the Basel-II.

The BB released the FSR 2010 yesterday at its office. The FSR has checked the health of the Bangladesh financial system and accordingly, advised the banks and non-banks to enhance capacity to absorb shocks.

The report was based on the data of 2010, but it used stress-tests of 2011 to assess the resilience of the financial system to adverse domestic and global macroeconomic developments.

The FSR observed that the domestic financial system remained stable in 2010 despite an adverse international backdrop. Market participants and stakeholders reposed their confidence in the stability of the domestic financial system and stress testing. The FSR, however, pointed out some weaknesses that need to be addressed.

Though the report found a resilient local financial system supported by congenial macroeconomic environment in 2010, it identified a risk arising from the global economic vulnerabilities and its spillover impacts on the economy.

“The financial sector has to make buffer in the wake of a deteriorating global financial condition. The banks should have a liquidity contingent plan,” Chowdhury said.

He cited an example of cash withdrawal during the Eid festivals. “Can a bank remain liquid if it faces 2 percent more withdrawal than that of normal transactions?” he questioned.

He also asked the banks to be more vigilant on the asset-liability mismatch.

The report found banking sector’s balance sheet recorded a sizeable growth in 2010. Assets and loans were not concentrated among a small number of banks. The provision shortfall was also reduced significantly, it said.

Banking industry’s operating and net profit increased by about 47 percent and 54 percent respectively in 2010 than 2009. The return on assets and equity also increased in line with net profit.

Though the non-performing loan ratio has been on a downward trend, the banks have to pay due attention to bring down the ratio to the minimum level, said the report.

The FSR found no big risk in the equity and currency markets during the period under review. However, the local currency was devalued by nearly 15 percent in 2010.

Islamic banks showed a remarkable growth in 2010. Its asset base grew by 27.35 percent, deposits by 25.69 percent and investments by nearly 30 percent in 2010 than 2009. The CAR of five Islamic banks out of seven was higher than the regulatory requirement of 9 percent.

Non-bank financial institutions have also been growing. The total assets of the NBFIs increased by 30 percent in 2010 compared to 2009. The volume of term financing by the NBFIs rose by more than 61 percent in 2010 than the previous year.

However, the non-performing assets (NPA) of the NBFIs increased by over 8 percent in 2010. But provisions maintained against the NPA showed a surplus over required provisions, said the FSR.

The payment and settlement systems in Bangladesh remained resilient and continued to operate smoothly throughout 2010. There was a remarkable shift from paper-based payments to the electronic form, but cash and cheques remain popular, said the report.

On the capital market, the report blamed lower pace of investment activities, reduced interest rates on deposits and savings certificates and over-crowding for the huge flow of capital in the stockmarket in 2010.


Banks to benefit from loan growth next year

MUSCAT: Local banks are likely to benefit from a robust growth in loan book next year, although challenges are ahead due to the imminent entry of two Islamic institutions, said a brokerage house in a research report released yesterday.

With spending on mega projects, over RO10.4 billion investment planned in construction sector by 2014 and investments worth RO386 million in oil and gas projects in the pipeline, banks will comfortably show healthy loan books, said Al Maha Financial Services in its ‘banking sector – performance overview.’

“We believe that favourable demographics would continue to act as a key driver for growth in consumer lending segment and expect the banks to benefit from higher disposable income levels of the youth population,” noted the report.

However, Al Maha said next year is likely to be a challenging period for local banks as two new banks are expected to start Islamic banking services. “However, banks are gearing up and take this as an opportunity to offer new variety of products and services,” noted the report, which was jointly prepared by Suresh Kumar, Radhika Gadhia and Kushboo Badlani.

Though the expected reduction in the interest rates and the ceiling on consumer loans are likely to impact the banks’ interest income, it is likely to help the banks to minimise the default risk and in turn improve the asset quality.

Al Maha also noted that half of the listed banks are expected to raise new capital in order to comply with the regulatory capital requirement of RO100 million.

“The banks are also likely to raise additional capital through other means such as rights issue, private placements and subordinated debt to fund the growing credit demand.”

Al Maha report said the total loans and advances of the six listed banks stood at RO10.36 billion by end-September, 2011 as compared to RO9.07 billion a year ago, registering an increase of 14.2 per cent year-on-year. BankMuscat continued to remain as the market leader in terms of gross loans and advances.

The bank’s market share grew from 45.3 per cent by end-September 2010 to 45.8 per cent for the same period this year. Oman International Bank underwent a challenging phase during this time with its market share declining to 7 per cent from 7.65 per cent a year ago.

Healthy growth

The loan book of the banking sector witnessed a healthy growth, both in the corporate and consumer segments, during the last one year.

The corporate credit grew by 16.5 per cent year on year from RO5.22 billion to RO6.08 billion during the period under review, with major companies like Oman Cement, Raysut Cement, Renaissance Services, A’Saffa Foods availing credit to fund their capital expenditure programmes.

The consumer segment witnessed a growth of 12.9 per cent, year on year to reach RO4.28 billion by end-September 2011.

The increase in disposable incomes owing to the hike in remunerations of employees was one of the major drivers for the incremental demand in the retail segment.

Referring to liquidity, Al Maha report said the customer deposits, including certificates of deposits, of the six listed banks stood at RO10.24 billion by end-September 2011 from RO8.22 billion for the same period a year ago, showing a growth of 24.6 per cent year on year.

The banking sector witnessed marginal improvement in the interest spread irrespective of the drop in yield, as a result of the decline in interest rate. Cost of funds also showed a drop during the first nine months of this financial year compared to the same period last year as a result of banks’ endeavour to access low cost funds.

This has resulted in improvement of the spread from 2.73 per cent in the first nine months of 2010 to 2.85 per cent for the same period this year.

Omani banks showed an impressive performance in the first nine months of this financial year by improving their profitability, the report said, adding; “The six listed Omani banks together have achieved a year-on-year growth of 19 per cent in net profits in the first nine months of this year.”

“Total profits of the listed banks reached RO179.6 million during the nine months ended September, 2011 from RO150.8 million reported during the same period last year.” Also, all the three quarters of this year witnessed better profitability compared to their respective quarters in the last year.

“Total profits of the listed banks reached RO179.6 million during the nine months ended September, 2011 from RO150.8 million reported during the same period last year.” Also, all the three quarters of this year witnessed better profitability compared to their respective quarters in the last year.

Islamic banking faces liquidity risk: Expert

Doha: Islamic banking sector is increasingly facing liquidity risk across all geographical regions. The situation is more challenging in the GCC region, said an expert.

He called for the industry leaders and the regulators to create new instruments and develop fresh policy tools for  the liquidity risk management in the Islamic industry sector.

Dr Salman Syed Ali of Islamic Research and Training Institute, Saudi Arabia, cautioned that the Islamic banking sector might also go the way of conventional banks, unless effective tools are not in place immediately.

Dr Salman, who was in Doha to attend the International Conference on Islamic Economics and Finance, told The Peninsula: “The structure of liquidity of Islamic banks have changed significantly over the years.  From an era of liquidity surplus in the beginning of the decade Islamic banks are now in the era of liquidity shortages. In general, the banks have moved from a position of positive gap to a negative one or from a negative gap to a more negative one.”

The level of liquidity in Islamic banking has been decreasing while liquidity risk has been increasing in all geographical regions over the past decade. The risk has further increased after the global financial crisis.

Contrary to the general perception, the liquidity of Islamic banking industry in the GCC is lowest with highest liquidity risk when measured by liquidity ratio and financing to deposit ratio.

There has been a major structural change in the maturity profile of assets and liabilities of Islamic banks between the years 2000 and 2009 from a position of positive short-term maturity gap to a negative gap.  This, according to Dr Salman, is a strong indication of a liquidity risk.

In comparison with the conventional banks, the Islamic banks, despite downward trend in their liquidity ratio, are holding much higher proportion of liquid assets.  Even during the financial crisis the liquidity in Islamic banks was more than twice the liquidity of conventional banks. This, among other factors, may have helped Islamic banks to ride out of the crisis.  But things are changing in the industry.

For want of updated Islamic instruments for liquidity management, the fully fledged Islamic banks face more difficulties compared to the conventional banks and the Islamic banking windows of conventional banks. A comprehensive review liquidity management practices and policies of Islamic industry is an urgent need.

“Out of the box thinking is needed to come up with solutions.  Researchers and policy makers need not confine their thinking within the present model of commercial banking and the set-up of the existing financial sector”, he said.

Among the GCC countries, Kuwait had consistently low liquidity ratio over the period. UAE is the country where liquidity ratio dropped most and remained lowest during the global crisis.  Among other countries, Jordan has the highest liquidity ratio consistently since 2004 followed by Malaysia.  The liquidity ratio in Sudan has been consistently showing a downward trend since 2004.

An important measure of liquidity risk is the Financing to Deposit Ratio – a situation that captures the relationship between changing nature of demand for financing and deposit gathering ability of banks to fund that demand.  This ratio is quite high in the GCC and Mena when compared to other regions,  Dr Salman said.


BSE and TASIS train business executives for Islamic banking & finance

Mumbai: Corporate executives and finance professionals learning and discussing financial business market issues in conference rooms at Bombay Stock Exchange (BSE), is a normal scene but what happened last week was unprecedented.

This time they were learning and discussing Islamic banking and finance at a program jointly organized by Taqwaa Advisory and Shariah Investment Solutions Pvt Ltd (TASIS) and BSE.

Training program on Islamic banking and finance held at BSE, Mumbai

TASIS and BSE organized the two-day program “Islamic banking, finance and capital market” (16-17 Dec.) for market professionals, fiancé and banking executives. The push might have come from growing Islamic banking and finance sector across continents.

Islamic banking and finance has reached the boundaries of more than 75 nations of the world, and many developed and secular nations including UK, USA, France, Germany, and Singapore are promoting this concept.

The robust performance of Islamic banking and finance sector during the recent financial downturn has added to its magnetism.

Western nations such as UK, are promoting Islamic finance with the slogan of “no favor but no discrimination”. Same way in India many institutions including some owned by government have showed interest to capitalize on this growing niche opportunity.

For example Kerala government owned KSIDC has started Al-Barakah Financial Services Ltd; GIC of India has started Islamic re-assurance scheme, SEBI has permeated several schemes explicitly adhering to the Islamic rules of investment, and Bombay Stock Exchange has started a Shariah index for share marketing.

The two-day program by TASIS and BSE was organized for finance professionals, fund managers, merchant bankers, corporate financial advisors, portfolios managers, and product development managers, finance marketing professionals, chartered accountants, stock brokers, wealth managers & AMCs. The program mainly focused on the following:

•        The basic concepts of tenets of Islamic banking and finance

•        The working of an Islamic bank

•        Islamic law relating to investment in the stock market

•        Screening processes of selecting shariah compliant stock

•        Islamic insurance

Program to train professionals for coming Islamic finance market

TCN spoke to Dr. Shariq Nisar, Director of TASIS, on the program and its purpose. The reason to organize this programme was that many business professionals were interested in knowing about Islamic finance, so by the way of this programme professionals will get aware of the Islamic finance, and also when Islamic banking is going to start in India and if the people are not aware of it then the chances of exploitation is very high. So to avert that kind of situation this programme is conducted, said Dr Nisar.

He says it is first kind of programme organized by the BSE for the professionals who want to learn about Islamic finance. He further says that majority of the professionals attending this programme are non-Muslims, and non-Muslims professionals are showing curiosity and interest in learning about Islamic finance, and how Islamic banking and insurance can function and also the Muslims who are attending this programme are seeing it from business operational point of view, and not in a religious way.

India needs Islamic finance for growth: Dr Shariq Nisar

Dr. Nisar says Islamic finance in India depends on two important aspects: First is the domestic demand; and the second is India’s position in the globalization of the financial sector, because domestically India is unable to generate enough capital largely because its major Muslim population is being discouraged to enter into the Indian market because of the perception of Haram, and globally the large number of global capital is getting generated from middle east or many other Islamic countries.

So if India wants to satisfy the demand of investment and capital it has to have an Islamic financial market both domestically and globally, and India will definitely be going to have a Islamic financial market very soon. The sooner India does it, the better for the nation and the whole economy, he ascertains.

Dr Shariq Nisar, Director, TASIS, giving market executives tips about Islamic banking and finance

He said the shariah index started by the BSE is just a one step. It is not the end. There is going to be much more research by the BSE and TASIS to certify many more shariah compliant products and the Islamic banking. He says Islamic finance is not just for the minority Muslim population in this country, but it is for the money.

The nations which have allowed Islamic finance were not lovers of Islam. For example France allowed Islamic finance but in the same month it banned hijab. Different countries and people are attracted towards Islamic finance for the need of money.

He said Islamic finance is all about the real economic activity, it doesn’t allow gambling with the money, in this way it can restrain economic downturn by promoting real economic activity and deterring people to gamble with money so it will be in the larger interest and welfare of the citizens of this country.

He says India is a country with huge Muslim population but still it is far behind in implementation of Islamic finance. Muslims in this country have money but they don’t know how to invest it financially, nor even banking professionals know as to how to guide their Muslim customers to invest in the commodity market.

So this type of programme is conducted by the BSE and TASIS to train the banking officials in the Islamic finance.

Young market executives on Islamic Finance

TCN also spoke to some of the finance professionals who were attending the programme.

Varsha Jalan is an employee of a law firm giving legal assistance in the finance related matters. She said reason for joining this programme is to develop her expertise in the growing Islamic financial market, and because it could be a good mode of finance in India.

Sumit Jalan and Yasmeen both belong to the banking profession. They said that Islamic finance has a good potential in India because of the large number of Muslim population which India possess, but at the same time they ascertain it should not be limited to a particular community because it is very viable and economical than other services, so every person should get avail of this service.

Finance executives Yasmeen, Sumit and Varsha attending the workshop on Islamic banking and finance held at BSE, Mumbai

Varsha says that the programme was informative, and she learned new and surprising things about the Islamic finance and about the tenets of Islam. She thinks Islamic finance is a good way for India to attract FDI because India is in need of money and for Middle East India is good alternative to the west.

Sumit and Yasmeen said that they learned many things about how the markets and MNCs work in Islamic countries and it was useful for them as they come from the banking sector, and it was good experience for them to learn about the core principles of Islamic finance.

Sumit says that to attract FDI in the banking sector you need to have knowledge of the environment which investors are looking forward for their investment, so the knowledge he gained will be useful for him in the future. Yasmeen said being a banker learning something new regarding to their profession was a pleasant experience for her.


More Arab banks eye local chances

Interest by Gulf lenders in Turkey’s Islamic banking market is on the rise, according to Adnan Ahmed Yusuf Abdulmalek, head of Union of Arab Banks

A customer walks past the main entrance of Bank Audi head office in Beirut. The lender owned by the Lebananese Sal-Audi Saradar Group has been the only foreign bank granted license to operate in Turkey in the last 14 years.

Leading Arab banks are currently eyeing opportunities to penetrate Turkey’s growing finance market, the top executive of Union of Arab Banks said yesterday, adding that possible investors consider merger and acquisitions.

“Banks from Arab countries and Gulf countries are highly interested in Turkey,” said Adnan Ahmed Yusuf Abdulmalek, head of Union of Arab Banks. Emirates International Bank and Qatar International Bank are among the banks interested in starting up new banks from scratch, he said.

“If the barriers were eliminated by Turkish authorities, there would be many Arab banks and a large group of investors investing in Turkey’s banking sector,” he said, adding that Turkish banks would benefit a great extent through such investments.

“The interest from the Arab banks will be even higher now on,” he said. Bank Audi has been recently granted with a license to found a Turkey unit, he said.

Arab banks and investors have been encouraged by the decision for investing in Turkey’s banking sector upon the decision, he said, and possible investors consider founding new banks as well as merger and acquisitions with Turkish banks.

Bank Audi encourages Gulf banks

Abdulmalek said Lebanese Bank Audi gave the sign to other possible investors in Arab and Gulf countries to prioritize Turkey in their investments. Turkey continues to increase its influence both politically and economically in the region, he said.

“If the investment climate in Turkey’s banking sector improved and Turkey would authorize licenses for more foreign banks, leading banks in the region such as Dubai Islamic Bank would want to open branches in Turkey,” he said. The Arab Banks would be interested in operating in participation banking in the country.

Turkey’s Banking Regulation and Supervision Authority (BBDK) gave a license to Lebanon Bank Audi Sal-Audi Saradar Group to establish a bank in Turkey. Having been the only foreign bank granted license to operate in the country in last 14 years, the bank was authorized to collect deposits in Turkey with a capital of $300 million on Oct. 28.


Oman: Islamic banks eye 20pc share

MUSCAT — Economist and academic researcher Dr Nasser al Mawali expects that Islamic banks — that are expected to start their activity for the first time in the Sultanate at the beginning of next year — will acquire about 20 per cent of the domestic market of the banking sector in the Sultanate during the next three years.

He pointed out that the rate of growth of the assets of Islamic banks in the Sultanate is expected to range between 15 to 20 per cent annually, which is in line with the global rates. Dr Al Mawali, Assistant Professor in International Economics at SQU and Secretary of Omani Economic Association, said that some commercial banks in the Sultanate are excepted to be transferred to Islamic banks entirely if they get the necessary permits as happened in some neighbouring countries.

He emphasised that the presence of Islamic and traditional banks in the domestic market promotes competition among them and contribute in finding alternatives and multiple options of financing and customer service especially for small businesses that suffer from poor funding.

Dr Al Mawali monitored many challenges Islamic banking faces globally like competition from traditional banks, the shallowness of capital market, limited areas of investment and weaknesses in qualified human resources capable of developing the jurisprudence of transactions.

Dr Al Mawali said the presence of Islamic banks in the Sultanate is a promising opportunity for the growing Omani economy. So His Majesty ordered establishment of Islamic banks as well as allowing commercial banks to open windows in response to the requirements of the current phase of the banking industry and to keep pace with the challenges of globalisation and requirements.

Islamic banks in the Sultanate will have significant added value to the banking sector as it will open up broad prospects for financing that is different from the traditional way, and gives banks the opportunity to offer new tools and products compatible with the Islamic law.

An Islamic bank follows the Islamic law in all the banking transactions that are based on loss and gain. Some may look at Islamic banks as charity associations but in fact they are profit institutions that deal with tools and products compatible to the Islamic law.

The idea of Islamic banks appeared in 1941 in Malaysia when the government issued simple bonds that do not apply interests in its system.

In 1950 fund savings appeared in Pakistan following the same way, and then Dr Ahmed al Najar founded a saving bank in Egypt in 1963 followed by the establishment of Nasir Social Bank, that was founded by the late Egyptian leader Jamal Abdel Nasir, which was intended to help the needy students and others.

During the following years the idea developed to establish the Islamic Development Bank under the guidance of the foreign ministers of Muslim countries in 1974 that aim to finance government development projects in Muslim countries.

The Sultanate has instinctive elements to embrace Islamic banking, if the proper environment was harnessed to this service. The environment is represented in the government, banks and individuals.

The government has the biggest role in creating appropriate legal and regulatory environment to ensure full compliance by all Islamic banks in the Sultanate of the regulations of Islamic banking.

The government has also to ensure that all banks applying the International Islamic Fiqh Academy standards and the standards of the Accounting and Auditing Organisation in financial institutions.

The Islamic banks can overcome fierce competition from traditional banks and they can keep pace with the needs and legitimate financial innovations. The founders of these banks have to believe that the ultimate goal of these banks is to achieve the purposes of the law and not just profit, and these institutions must involve in the global banking system such as Basel 2