Wednesday, May 6, 2009

Liquidity squeeze hits Islamic finance: SBT

While Islamic finance continues to develop, it has been hit by a liquidity crunch. The sector is grappling with the plunge in oil revenues and the impact on many of the Middle East countries, reports Singapore's The Business Times (May 07, 2009).
The slump in property prices is another big headache, given the asset-based nature of Islamic finance. In February, Abu Dhabi gave a US$10 billion ($14.78 billion) bailout to neighbour Dubai as it reeled from the property bust.Dubai has accumulated US$80 billion in debt to build real estate projects, including the world's tallest building, the report added, noting that there have also been dire warnings that some Islamic banks may be forced to merge later this year if liquidity does not improve.
"While the industry is not exposed to the triggers of the sub-prime crisis, it is not immune to the secondary effects, such as the liquidity crunch, slowdown in economic activity as well as transaction flows.
"Nonetheless, the industry is at a nascent stage of development and still has plenty of room to grow. The global sukuk market, for instance, while depressed, is gradually gaining acceptance in the Gulf as a preferred means of financing and investment," Vince Cook, chief executive of the Islamic Bank of Asia (IB Asia) told the business daily.
The report goes on:
Sukuk or Islamic bonds issuance has contracted and is slated to be lower than in previous years.
Malaysia's capital market regulator last week estimated that global Islamic bond issuance this year would be worth at least US$10 billion, said a Reuters report.
New sales of Islamic bonds fell to US$15.77 billion last year from US$46.65 billion in 2007, the Islamic Finance Information Service (IFIS), which tracks data in the Islamic finance industry, said.
Against this backdrop, Singapore this week plays host to the 6th Islamic Financial Services Board (IFSB) summit, a high-profile event which brings together regulators, major market practitioners, especially from the Middle East, and academics involved in Islamic finance.
The theme of the summit is the future of Islamic financial services.
The IFSB, which is based in Kuala Lumpur, serves as an international standard-setting body of regulatory and supervisory agencies that have a vested interest in ensuring the soundness and stability of the Islamic financial services industry.
The 6th IFSB summit will be the first time that the event is held in East Asia.
According to the Monetary Authority of Singapore, the president of the Islamic Development Bank (IDB) and eight central bank governors and deputy governors have confirmed their participation in the summit.
The governors/deputy governors are from the Middle East and Asia (Bahrain, Jordan, Korea, Malaysia, Qatar, Saudi Arabia and the United Arab Emirates), and Sudan.

1 comment: