Sunday, May 25, 2008

Bahrain sees rapid growth of Islamic financial institutions

By Habhajan Singh
Bahrain, a global leader in Shariah compliant finance, is host to the largest concentration of Shariah compliant financial institutions in the Middle East, according to a recent research note.
Presently, there are 29 Shariah compliant banks and 15 takaful operators in the kingdom, says research house Securities & Investment Company BSC (Sico).
The island has close to 150 banking institutions, both locally and globally incorporated, with combined assets of US$245.8 billion (RM768.86 billion) in 2007.
Among the banking institutions, it includes 29 retail banks, 85 wholesale banks and 35 representative offices.
The report said Bahrain is at the forefront in the market for Shariah compliant securities (sukuk), including shortterm government sukuk as well as leasing securities.
It noted that Shariah compliant banking has grown at a robust pace and has been gaining popularity during the last few years with total assets of Shariah compliant banking at US$16.4 billion in 2007, compared with US$4.2 billion in 2003.
In the Islamic banking space, it said Shamil Bank, Bahrain Islamic Bank BSC (BISB) and Al Salam Bank (Salam) are the leading players with about 12.4%, 10.7% and 6.4% market share in terms of total Islamic banking assets at the end of 2007. The report said growth in Shariah compliant banking has exceeded the growth witnessed in the entire banking system of Bahrain, noting that the market share of Shariah compliant banks correspondingly increased from 1.8% of total banking assets in FY00 to 6.7% in FY07.
"The strong growth of Shariah compliant banking and their impact on financial markets has prompted a number of traditional local and international banks to seek stronger relationships and joint project financing arrangements with their Shariah compliant counterparts.
"The Shariah compliant banking industry is becoming highly competitive and more multinational banks are entering the Shariah compliant banking arena, thus changing the competitive dynamics of Bahrain's commercial banking," it said.
The report added that although regional liquidity and a booming economy have stimulated growth for both Shariah compliant and conventional banking in Bahrain, Shariah compliant banking has grown at a much faster pace over the last few years.
"There has been a growing desire amongst customers particularly business, corporate and government customers to transact their financial requirements in accordance with the Islamic Shariah principles," it said.
The report said the backing of governments coupled with a strong religious revival is acting as a catalyst for growth in Shariah compliant banking.
It expects Gulf Cooperation Council (GCC) Shariah compliant banks to increase their market share and account for about 18% share of the banking sector's assets by 2012 from 13% in 2007. (The Malaysian Reserve, May 26, 2008)

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