Interview: Mohammed A Rahman Bucheerei
To what extent is consolidation a necessary strategy across the Islamic banking sector?
MOHAMMED A RAHMAN BUCHEEREI: Consolidation is key to continued success in an ever-increasing competitive environment. Having said that, I must also stress that the issue of consolidation is perhaps best addressed by the regulator, the Central Bank of Bahrain (CBB), which has earned an international reputation for prudence and excellence.
The CBB is aware of individual performances and financial positions, as well as the collective state of the financial services market. This unique insight and long-term appreciation for the bigger picture puts the CBB in a better position to evaluate consolidation as a strategy for the Islamic banking sector.
What are the key issues for sharia-compliant investment vehicles in Bahrain, and what is the trend for sukuk (Islamic bond) demand moving forward?
BUCHEEREI: The sharia-compliant financial sector, which grew in the years leading up to the global financial crisis of 2008, has received a boost due to the reputation of Islamic finance principles, which prohibits interest and shuns high levels of debt. This has spared the sector many of the problems caused by excessive leverage elsewhere. Islamic investment principles have also gained wider currency due to dovetailing with the sustainable, socially responsible and eco-friendly investment movement in Europe and North America.
As per an Ernst & Young report announced during the 2012 Accounting and Auditing Organisation for Islamic Financial Institutions – World Bank Annual Conference on Islamic Banking and Finance in Bahrain, the sukuk market has seen sophisticated structures introduced by several financial groups across the GCC.
In December 2012 the CBB announced that the monthly issue of the sukuk Al Salam Islamic securities for a BD18m ($47.34m) issue, which carries a maturity of 91 days, has been oversubscribed by 166%. This is an indication that the sukuk market will continue to grow, even if it does trail behind conventional bonds.
Global sharia-compliant notes gained 9.6% in 2012, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index, compared with 18.5% for developing-nation securities on JPM organ Chase’s EMBI Global Composite Index. The average yield on dollar sukuk dropped 1.18 percentage points to 2.81%, while that for emerging-market paper fell 1.58 percentage points to 4.50%, according to the two gauges.
In what way will Islamic banks benefit from pending government infrastructure investments?
BUCHEEREI: Significant funds are being allocated towards infrastructure investments and related housing investments that will fuel economic growth across multiple sectors. This, of course, includes the banking and financial services sector – including both Islamic and conventional institutions – which will need to channel, manage and grow these investments. Islamic banks are, arguably, perhaps even better positioned than their conventional counterparts to capitalise on that growth due to the asset-backed nature of sharia-compliant investments. Consequently, Islamic banks have already structured many real estate and infrastructure-related products and services that can be readily deployed or easily adapted to meet specific requirements.
How can Islamic banks standardise sharia compliance on a global platform?
BUCHEEREI: Islamic banks and financial institutions will, of course, have their own unique products. These do not lend themselves to standardisation beyond the inbuilt ethical standards and sharia compliance required by Islamic financing. Bilateral dealings with other Islamic institutions, however, require efforts to improve standardisation which, in turn, will facilitate growth in the domestic market and for cross-border operations.
Given the current trends and growth of Islamic financial services, there is a need for Islamic banks to take a leading role in standardisation initiatives, including for financial documentation, accounting and auditing.
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