Banking Gets Bigger
The banking sector in Bahrain and the Gulf region received a major boost in late July, with the official launch of Investment Dar Bank, established to fill what its investors see as a gap in the Islamic banking market in the Middle East.
On July 26, Investment Dar Bank was formally presented to the public at an establishment assembly meeting in Manama. With a paid up capital of $200m, and a declared capital of $1bn, it will become one of the major players in the Gulf region’s Islamic banking sector.
The new bank has already set out what its position will be in the global market, aiming to offer investment banking services and transaction advice, rather than financial services to individuals. In particular, it will look at capital investment in sectors such as industry and agriculture as well as at privatisation projects.
Investment Dar Bank officials are confident the institution will meet a warm reception from clients.
According to the bank’s chairman, Abullatif al-Janahi, while studies showed that up to 75% of Muslims preferred to deal with Islamic banks, there were not enough to meet the needs of clients, with Islamic banking houses representing just 10% of the banks operating in the region.
“It is essential for us to make Islamic banking services available to the public and to develop these services to be active and comprehensive and support real economic activity in the country, at the same time working closely and harmoniously with the global financial system to provide better growth rates and monetary stability worldwide,” he said.
The decision to base Investment Dar Bank in Bahrain was no coincidence, but a testimony to the growing financial clout of the kingdom, which already has the highest concentration of Islamic banks in the region. According to Janahi, Bahrain was the ideal location for the bank to set up shop, as the central bank and the government has been working to encourage Islamic banking through strengthening the appropriate legislative and supervisory environment for investors.
“For these and other reasons, Bahrain outweighs others as a centre for Islamic banking,” he said.
Adnan Abdul Qader al-Musallam, the chairman of the board of the Kuwait-based investment company Dar Al Istithmar, which owns 31% of the new bank, echoed these statements, saying that Bahrain’s government had contributed greatly to reinforcing the Islamic banking industry.
The timing of the bank’s launch was also significant, according to board member Abdurrahman A al-Dawood, as it comes at a time when the countries of the Gulf Co-operation Council are enjoying the benefits of high oil revenues and Islamic banking is gaining greater acceptance worldwide.
However, while the bank has the obvious aim of making money for its investors, it has also set out its credentials as a contributor to social development in any of the markets it operates in.
“When investing, the bank must also consider how its investment will make a contribution to solving social issues such as unemployment and generating greater national incomes,” Janahi said. “This will only be possible with evolutionary thinking, and this is what the bank will pursue.”
Bahrain already has 24 Islamic banking houses operating in the kingdom, along with 11 Islamic insurance companies, having pioneered the Islamic form of banking in the 1980s. According to figures released by the central bank, these banks have combined assets in excess of $12bn as of the end of last year, an increase of 52% over the 2005 figure and 500% up on the total at the end of 2000. The financial sector is, after the energy industry, the highest contributor to the kingdom’s gross domestic product.
While the Islamic banking component of the sector in Bahrain is growing fast, it still represents just a fraction of the whole. As of the beginning of this year, the total assets of the kingdom’s banking sector stood at $187.3bn. However, with the industry seeing asset levels increase by 33.5% overall, the rate of growth of Bahrain’s Islamic banks is far outstripping those of the more traditional representatives in the sector.
As cited by Investment Dar Bank officials, Bahrain’s central bank also has the most comprehensive framework for Islamic banking in the region, and issues a rulebook for the sector covering licensing requirements, capital adequacy, risk management, business conduct, financial crime and disclosure and reporting regulations, updated every quarter.
Having led the way in Islamic banking, Bahrain obviously has no intention of surrendering its lead. With strong growth in the sector and new entrants such as Investment Dar Bank, the kingdom appears set to reign supreme in the world of Islamic finance.
OBG – Bahrain Volume 114