10-18-2008, 09:29 AM
MANAMA: With their ban on interest, the Gulf Islamic banks that managed to avoid the types of debt which proved toxic for their conventional counterparts are now praying the global crisis will bypass their property holdings.
Islamic banks, which manage an estimated $1 trillion worldwide, do not have the same flexibility as conventional banks in managing balance sheet risks, bankers say. For instance, they cannot reduce exposure to the real estate market by using derivatives.
So Islamic bankers watched last week’s Cityscape real estate fair in Dubai with intense scrutiny. But even the unveiling of a planned km-high tower failed to allay their fears that a boom in Gulf Arab real estate may be grinding to a halt.
The fate of Islamic banks in the region is closely tied to the property markets as they are required to underpin transactions with physical assets due to the ban on interest, which is viewed as usury under Islamic law.
“Islamic banks may initially have been viewed as less impacted because they are unable to invest in the instruments that caused the current instability some 18 months ago,” said Danie Marx, head of treasury and capital markets at European Islamic Investment Bank.
“However, as the instability drags on and the second-phase impact of the crisis spills over into the region, either as restricted liquidity or adverse movement in asset prices, for example in real estate, it could start to hurt them.”
Confidence in the Gulf property market has been hit by the global financial turmoil, and there are signs that a five-year property boom is set to slow.
Dubai house prices rose 16 per cent during the second quarter but that compared with 42 percent in the first, according to real estate consultancy Colliers International.
As the global credit crisis intensifies liquidity has begun to tighten, even in the world’s top oil-exporting region, which is flush with cash after six years of rising oil prices.
The chief executive of Malaysia’s CIMB Islamic Bank, one of the leading sharia lenders, said on Tuesday some Gulf Arab Islamic banks could fail as frozen credit markets and slumping property prices take a toll, though government aid should save the industry from a prolonged downturn.
But some bankers have raised the question of whether Islamic banks can tap into emergency funds set up by governments the way conventional banks can, due to the ban on interest.
The United Arab Emirates government more than doubled its initial rescue package for banks to almost $33 billion on Tuesday, and bankers say its promise to guarantee banking deposits has already restored confidence in capital markets.
However, while the UAE has not released details of how its second cash injection will work, the initial 50 billion dirham facility made additional liquidity available to banks only at rates of interest above the repurchase rate.
“The fact that we have not seen instability in the capital adequacy of Islamic banks does not mean that it cannot happen,” Marx said.
http://www.thenews.com.pk/daily_detail.asp?id=141645
Islamic banks, which manage an estimated $1 trillion worldwide, do not have the same flexibility as conventional banks in managing balance sheet risks, bankers say. For instance, they cannot reduce exposure to the real estate market by using derivatives.
So Islamic bankers watched last week’s Cityscape real estate fair in Dubai with intense scrutiny. But even the unveiling of a planned km-high tower failed to allay their fears that a boom in Gulf Arab real estate may be grinding to a halt.
The fate of Islamic banks in the region is closely tied to the property markets as they are required to underpin transactions with physical assets due to the ban on interest, which is viewed as usury under Islamic law.
“Islamic banks may initially have been viewed as less impacted because they are unable to invest in the instruments that caused the current instability some 18 months ago,” said Danie Marx, head of treasury and capital markets at European Islamic Investment Bank.
“However, as the instability drags on and the second-phase impact of the crisis spills over into the region, either as restricted liquidity or adverse movement in asset prices, for example in real estate, it could start to hurt them.”
Confidence in the Gulf property market has been hit by the global financial turmoil, and there are signs that a five-year property boom is set to slow.
Dubai house prices rose 16 per cent during the second quarter but that compared with 42 percent in the first, according to real estate consultancy Colliers International.
As the global credit crisis intensifies liquidity has begun to tighten, even in the world’s top oil-exporting region, which is flush with cash after six years of rising oil prices.
The chief executive of Malaysia’s CIMB Islamic Bank, one of the leading sharia lenders, said on Tuesday some Gulf Arab Islamic banks could fail as frozen credit markets and slumping property prices take a toll, though government aid should save the industry from a prolonged downturn.
But some bankers have raised the question of whether Islamic banks can tap into emergency funds set up by governments the way conventional banks can, due to the ban on interest.
The United Arab Emirates government more than doubled its initial rescue package for banks to almost $33 billion on Tuesday, and bankers say its promise to guarantee banking deposits has already restored confidence in capital markets.
However, while the UAE has not released details of how its second cash injection will work, the initial 50 billion dirham facility made additional liquidity available to banks only at rates of interest above the repurchase rate.
“The fact that we have not seen instability in the capital adequacy of Islamic banks does not mean that it cannot happen,” Marx said.
http://www.thenews.com.pk/daily_detail.asp?id=141645