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15 March 2008The pure commercial-banking model of Islamic
banking in the Gulf Cooperation Council (GCC) countries wasbeing
increasingly complemented by other recently-developed forms of more
specialisedShariah-compliant financialintermediation, Moody's
Investors Service said yesterday in its special report, 'Islamic
Banks in the GCC: AComparative Analysis'.
Up to the mid-1990s, Islamic banking institutions in the six GCC
countries Bahrain, Kuwait, Oman, Qatar, Saudi
Arabia and the United Arab Emirates were mainly handling
plain-vanilla financial intermediation, raising
deposit-likeliabilities in the form of current accounts and
profit-sharing investment accounts to recycle them into
Shariah-compliant credit exposures.
"This commercial-banking business model, dominated by both the
corporate and retail business lines, is now beingenhanced by the
emergence of two new activities. On one hand, Shariah-compliant
investment banking has grown asa viable, profitable and successful
way to manage alternative Islamic asset classes and on the other,
specialisedfinancial institutions focusing on mortgage, housing and
consumer banking have been providing financing solutions
tohouseholds facing unprecedented needs in terms of accession to
consumption and property," said AnouarHassoune,a Moody's analyst
and author of the report.
Islamic banking in the GCC has been expanding at double-digit
annual growth rates over the past decade. Today,Islamic banks in
the Gulf control a market share close to 15 per cent of the
regional banking system's assets, andhave become part of mainstream
financial intermediation in this part of the world.
Moody's noted that Islamic banks in the GCC have also become
more diverse: large pioneers established in the1970s co-exist with
new entrants, former conventional financial institutions recently
converted into fully fledgedShari'ah-compliant banking entities and
the Islamic windows of still-conventional banking providers.
Competition has been heating up, forcing Islamic banks to
enhance their commercial entrenchment, develop relevantbusiness
models, strengthen their brands and reputation and provide
innovative solutions to a growing number ofclients attracted by the
concept of interest-free banking.
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In the report, the rating agency draws a comparative analysis of
23 leading Islamic banks operating in the GCC,
seven of which are rated by Moody's. Together, these banks
account for total assets in excess of $125 billion or 25per cent of
Shari'ah-compliant banking assets globally. "The report has a
fourfold purpose to identify the variousbusiness models that are
emerging and enriching the Islamic financial industry in terms of
product supply,deconstruct the financial performance ofGCC-based
Islamic banks, determine the structural constraints Islamic
banksface in terms of risk positioning and ultimately, to clarify
the main drivers of Islamic banks' credit ratings,
whereapplicable."
Bahrain Tribune 20081
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