Islamic banks in the UAE are outperforming their conventional rivals in terms of profitability, liquidity and earnings per share, according to a new report.
And the study said the Shariah-compliant banks have not been seriously affected by the fallout from the global financial crisis as they operate to different standards in terms of loans and investment tools.
The study was compiled by Dr Mohammed Naeem Shaker, Professor at the Finance Department of the College of Business Administration at Ajman University of Science and Technology, and Dr Abdalla Salih, Assistant Professor at the college’s Accounting Department. It was discussed at the fourth Forum for Accounting and Auditing Bureaus and Companies in GCC countries which was held in the capital. The report said the number of Islamic banks in the UAE and the world rose during the worst period of the crisis when demand for Shariah-compliant banking services and products increased. Three of them opened in the UAE alone during 2008 – Noor, Al Hilal and Ajman. And the number in European countries is expected to increase over the next few years.
Dr Salih told Emirates Business that the study compared the financial situation of three Islamic banks, Dubai, Abu Dhabi and Sharjah, with three traditional banks, NBD, NBAD and ADCB over the years 2006 to 2009 and concluded that the Islamic banks performed better in terms of profitability, liquidity and earnings per share.
“The study has proved that the performance of the three Islamic banks was good and they were not basically affected by the fallout from the crisis,” he said. “They maintained their profitability level and their liquidity level went up. Also, there was an increase in the ratio of shareholders equity to total liabilities and equity.
“And the ratio of liabilities to the value of assets remained steady or varied only slightly. And there was a clear rise in earnings per share.”
In contrast, the study said the profitability of the conventional banks was greatly affected over the same period, especially as a result of the financial crisis in 2008 and 2009. Also the level of liquidity went down.
However, the conventional banks maintained their level of earnings per share or experienced only a slight difference. The ratio of liabilities to the value of assets was steady or changed only slightly and the ratio of shareholders’ equity to total liabilities and equity rose.
Dr Salih said the profits of the four Islamic banks listed on the Abu Dhabi and Dubai financial markets – Dubai, Abu Dhabi, Sharjah and Emirates – increased in the first quarter of 2009 compared with the last quarter of 2008.
Sharjah Islamic Bank and Emirates Islamic Bank made profits after recording losses in the fourth quarter of 2008. And Abu Dhabi Islamic Bank’s profits grew by 134 per cent in comparison with the last quarter of 2008 after it drew on the liquidity offered by the federal government. At the height of the global crisis Dubai Islamic Bank occupied third place in Meed’s list of the largest 20 Islamic banks in the Gulf in terms of assets, and June 30, 2009, these topped $23.9 billion (Dh87.78bn).
Abu Dhabi Islamic Bank came fourth with $15bn, Emirates Islamic Bank was eighth ($6.8bn) and Noor Islamic Bank was 10th ($6bn). During the crisis the Islamic banks’ profits rose, especially those of Dubai Islamic Bank whose profits went up by 31 per cent in the first quarter of 2009.
Mohamed Albeltagi, Head of the Shariah Department at the former National Bank for Development in Egypt, now known as the Abu Dhabi Islamic Bank – Egypt Branch, said Islamic banks in the UAE were among the best in the world in terms of growth, performance and compliance with Shariah regulations. The UAE was the first country to establish an Islamic bank – Dubai Islamic Bank.
“The number of Islamic banks is increasing greatly around the world and the rate of increase during the global financial crisis reached some 28 per cent. The assets of the the 700 Islamic banks went up to $822bn this year from $650bn in 2008. And the assets are expected to rise to $1.3 trillion in 2010. The figure is based on an annual growth rate of 15 per cent to 20 per cent.
“Islamic banks have survived the global financial crisis since no Islamic bank has announced bankruptcy, unlike banks that pay interest in America and elsewhere in the West where the number of bankrupt banks has reached 100. Islamic banks have financial tools that are totally different from those used by traditional banks and they have not been involved in charging interest on loans. Also Islam forbids the sale of debts and the issue of bonds with interest as well as margin selling. They do not give credit without carrying out detailed studies.”
Albeltagi said Islamic banks had set financial tools and Shariah alternatives including sukuks. Islamic finance prohibits bonds with interest and instead allows approved investment sukuks. Dubai and Malaysia are the world leaders in sukuks, which are issued against fixed assets and real rather than bogus transactions.
“Also the amount of finance given to customers should not exceed the investment assets held by the banks, and this is called the real economy. In this way the supply of cash and commodities and products in the market is even,” he said.
Munther Dajani, a partner at KPMG, said: “Islamic banks have come out of the global financial crisis stronger than ever. The healthy position of Islamic banks in the UAE and around the world is the result of commitment to the principles of Islamic finance that prohibit speculation. The banks make sure that sold and rented assets are real rather than bogus.”
Dajani said Islamic banking principles stressed that the seller had to own the assets and there should be good intentions behind the exchange of assets. Islam does not allow the sale of credit resulting from the sale of financial assets, and risk should be the responsibility of the seller.
Shaker said Islamic banks had a promising future in both the UAE and the rest of the world. “There is an increase in demand for their products and services in both Islamic countries – because most nationals and residents follow the Islamic faith – and non-Islamic countries, because of the impact of the international financial crisis,” he added.
“There is a belief among many Western politicians and economists that Islamic banks are a rescue belt, especially after they demonstrated their ability to avoid the direct impact of the crisis and in fact managed to grow noticeably during it. There is an almost daily increase in the number of Islamic banks being set up or traditional banks that establish Islamic branches.”
The impact of the crisis on the traditional banks and the banking sector around the world was very great as they cut back on lending. In addition the recession that accompanied the crisis forced poorly performing companies to go bankrupt and leave the market.
Shaker agreed with experts who said the Islamic banks in the UAE and elsewhere were not badly affected by the crisis.
“This is basically a result of their excellence as an industry,” he said. “Islamic banking expresses the convictions of many Islamic people. In addition these banks stick to the regulations of Islamic Shariah. So it is not surprising that while leading Western banks go bankrupt Islamic banks, whether large or small, become stronger.
“The crisis stemmed from the fact that the West allowed practices that were forbidden by God. For example, one of the main causes of the crisis was the selling of debts, which is prohibited in Islamic finance. In addition Islam prohibits the rescheduling of debts, which means the extension of a loan period in return for an increase in the interest rate.”
Shaker said the strong performance of Islamic banks during the crisis confirmed that Muslims had a lot to give to the world. The expansion in the number of Islamic banks globally and in the UAE was necessary so that Muslims’ money could be invested in their home countries and banks.
Albeltagi said: “State intervention is an important factor in the regulation of financial markets. The state can play an important role in the state of recession through financing some investment projects to push forward the wheel of production.”
Link: http://www.business24-7.ae/Articles/2009/11/Pages/IslamicbanksoutdoconventionalrivalsintheUAE.aspx
0 Comments:
Post a Comment