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Gulf banks look to excel in Islamic Finance after HSBC’s withdrawal

Published: 06/11/2012 04:31:00 PM GMT
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Sydney: Banks in the gulf are ready to make the most of reduced competition in Islamic finance sector especially in the Middle East region after HSBC Holdings announced that it is shrinking its global Islamic banking operations.

By Farhan Iqbal


Sydney: Banks in the gulf are ready to make the most of reduced competition in Islamic finance sector especially in the Middle East region after HSBC Holdings announced that it is shrinking its global Islamic banking operations.

Seeing the opportunity to grow amid less competition, National Bank of Abu Dhabi (NBAD) has revealed very different plans as it aims to triple the contribution of its Shariah-compliant operations over the next eight years.

The contrast suggests that rather than being a sign of weakness in the Islamic finance sector, HSBC’s decision reflected its own business priorities and to the extent that the British bank pulls back from the industry, local banks will gain an opportunity to expand.

HSBC announced early this month that except for wholesale banking operations, it would no longer offer Islamic products in Britain, the UAE, Bahrain, Bangladesh, Singapore and Mauritius.

It said it would focus its Islamic finance business on customers in Malaysia and Saudi Arabia, while keeping a limited presence in Indonesia.

The details of HSBC’s announcement, however, suggest the bank will not come close to pulling out of Islamic finance, and may even continue growing in some parts of the industry. The bank estimated it would keep about 83 percent of its Islamic business revenue after the move.

Days after HSBC’s announcement, Chief Executive of National Bank of Abu Dhabi - the second-largest bank in the UAE by assets, Michael Tomalin, said that his bank would boost its Islamic operations partly by introducing Shariah-compliant services in Egypt, Oman and Malaysia.

NBAD aims to derive up to 10 percent of its operating income from Islamic banking by 2020, up from 3 percent currently, he said at the launch of the bank’s Malaysian subsidiary.

Other Gulf institutions also plan to grow in the sector. Dubai-based investment bank Shuaa Capital is seeking to increase its share of Shariah-compliant business through the Islamic window of its credit division, a company spokesman said.

“It is too early to make any snap judgments. HSBC, RBS, BNP and Deutsche Bank have created separate desks to cater to Islamic structuring, and this speaks for itself,” he said.

But to the extent that the Western institutions do scale back, Gulf banks will eager to take their place, said Shafiq.

He said, “There is a very good chance that if they provide the sophistication and the suite of products currently put together by foreign banks, they could gain a major chunk of the business.”

HSBC did not detail how it would handle clients in the six countries where it will cut Islamic business, or give a monetary value for the size of the business.

“We will ensure that we maintain account services for existing customers, with appropriate sharia oversight, as they transition to alternative arrangements,” the bank said.

The experience of Qatar suggests some of HSBC Amanah’s customers in affected countries may not leave HSBC but instead move to the conventional side of the bank, limiting the windfall for other banks.

After Qatar last year banned conventional banks from offering Islamic services, the flow of deposits to Islamic banks was smaller than expected; many depositors stayed loyal to their institutions. By some estimates, 60-70 percent of bank customers base their choice of bank primarily on pricing and service quality rather than religious permissibility.



Michael Tomalin, Chief Executive of National Bank of Abu Dhabi

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