Cross-border clout still denied to Islamic banks

Sun Jun 10, 2012 8:10am EDT
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By Bernardo Vizcaino

SYDNEY (Reuters) - Established in 2007, Dubai-based Noor Islamic Bank said it planned to become the world's largest Islamic lender within five years, and would consider acquisitions to reach that goal.

But the global financial crisis dented those plans, and today Noor Islamic is focused on its domestic retail and takaful (Islamic insurance) businesses, with much of its overseas activity concentrated in Turkey and Tunisia.

"There are no plans to acquire any operations," chief executive Hussain Al Qemzi told Reuters in an interview. The priority is improving efficiency and cost-cutting, as part of efforts to strengthen the bank's financial position, he added.

Similar stories have played out across the Gulf. Islamic finance is still growing, but a major aspect is missing: the development of big cross-border banks that could spread ground-breaking products and best practice around the region, as multinational banks have done in conventional finance.

Saudi Arabia-based Al Rajhi Bank, for example, moved into Malaysia in 2006 predicting it would have 50 branches there by 2010. It now has about half that number, and a statement by the bank in March said it was focusing on improving operational efficency; it did not stress expansion. Al Rajhi, the largest Islamic bank in Saudi Arabia by assets, has also opened one branch in Kuwait and two in Jordan.

Islamic banks' regional reach generally lags far behind that of big, Western conventional banks operating in the Middle East, such as HSBC Holdings (HSBA.L: Quote), and major Arab conventional banks including Jordan-based Arab Bank Group ARBK.AM, which has a presence in 30 countries across five continents.

One exception is Bahrain-based Al Baraka Banking Group, an Islamic institution which has a presence in 12 countries, such as Jordan, Turkey and Pakistan. It plans to expand its network in North African countries, such as Tunisia, where Islamic finance is being promoted by democratic governments that took power after last year's uprisings.

But even Al Baraka has not expanded much in the Gulf; it has no major, permanent presence in that region outside Bahrain. In Indonesia, another centre of Islamic finance, it maintains only a representative office.   Continued...