Regulators, scholars and simple economics are pressing Islamic banks in the Gulf to diversify their money market transactions, a trend which could spur growth of the region's financial markets. Islamic money market assets have expanded rapidly in the last few years along with the rise of sharia-compliant banking.
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The GCC’s banking industry saw single digit growth in both revenue and profit last year as it continued to vastly outperform its international peers. A study by Boston Consulting Group (BCG) showed revenue at Middle East banks grew by 6.9 per cent on 2011 while profits increased by 8.1 per cent, largely due to an increase from extraordinary income sources. A new type of sukuk, introduced by a British unit of a Kuwaiti firm, could make inroads in the market by offering greater security to investors through a structure similar to conventional covered bonds. Providing recourse to a pool of assets if the originator becomes insolvent, covered bonds found a new lease of life in Europe and the United States during the global financial crisis as investors sought liquid and safe investments. Inconsistent regulation across the Gulf's takaful (Islamic insurance) industry is hurting profit margins and credit ratings, while leaving the door open to regulatory arbitrage, according to global insurance rating agency A.M. Best. New rules in Oman and updated ones in Bahrain are expected this year, but lack of coordination among regulators is making life difficult for takaful operators, said Vasilis Katsipis, Dubai-based general manager for market development at the firm. The implementation of the Malaysian-based Islamic Financial Services Board (IFSB) rules and regulation among central banks should be made mandatory to bring the industry to the next level, said Bahrain Central Bank executive director Khalid Hamad. He said mandatory rules and regulation would help the industry to grow better and avoid disagreement on syariah adherence. “If you want any industry to grow, you need proper rules and regulations, proper standards be it accounting, practice or prudential and skilled resources,” he told reporters here yesterday. The development of Takaful regulation in the GCC varies significantly country by country, creating an uneven playing field, according to a new report from A.M. Best. The levels of policyholder protection differ from one state to another, which has created opportunities for Takaful operators to pursue regulatory arbitrage, according to a new report from A.M. Best Co. This special report maps the provisions for Takaful regulation in the GCC and identifies the implications for policyholder protection and its impact on A.M. Best ratings. Banks in the Gulf region are set to see a gradual improvement in profitability on rising fee income and lower impairment charges, Fitch Ratings has said in a new report. The rating agency said the outlook for most banks in the GCC/Middle East region was stable, largely driven by the probability of sovereign support. HSBC’s decision this year to stop offering Islamic products in many of its markets has sent shock waves through the Gulf region, one of the global hubs for Islamic finance. The move underscored the difficulties facing even the largest conventional lenders that have tried to lure new customers to bank in compliance with Muslim sharia law. The 2012/13 edition of the World Islamic Banking Competitiveness Report 2011/12 was launched at a specially convened session at the World Islamic Banking Conference in Bahrain. Developed in collaboration with Ernst & Young, the report entitled Growing Beyond: DNA of a Successful Transformation, was presented by Ashar Nazim, Partner, Head of Islamic Banking Excellence Center, Ernst and Young and Shoaib Qureshi, Senior Manager Islamic Financial Services MENA, Ernst and Young. The World Islamic Banking Competitiveness Report 2012/13 to be launched on 10th of December 201212/3/2012 The World Islamic Banking Competitiveness Report 2012/13, developed in collaboration with leading international advisory firm Ernst & Young, will be officially launched on the 10th of December 2012 at the 19th Annual World Islamic Banking Conference (WIBC 2012) at the Gulf International Convention Centre in the Kingdom of Bahrain. |