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New Islamic banks strain staffing stock

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Points of Essence:

  • The aggressive business expansion plans by Islamic banks and a flurry of new players in the market do not coincide with the scarcity of the Islamic bankers readily available to feed the talent needs.
  • A short term measure to employ conventional bankers with retraining modules being planned for them seemed to have be undertaken.

By Robin Wigglesworth

Published: July 8 2008 03:00 | Last updated: July 8 2008 03:00

When Sheikh Mohammed bin Zayed al Nahyan, the crown prince of Abu Dhabi, attended the opening of the main branch of Al Hilal Bank, the latest in a line of new Islamic banks being set up in the region, he also opened a bank account.

The bank declined to disclose how large the inaugural deposit was, and whether the crown prince’s bank account number was the same as his mobile phone – one of the services on offer at Al Hilal. But the government contributed Dh4bn ($1.1bn) in start-up capital, so the crown prince presumably had first choice of the numbers on offer.

Al Hilal Bank follows on the heels of another government-backed start-up, Dubai’s Noor Islamic Bank, where various government agencies and Dubai dignitaries contributed Dh3bn in initial capital. Both institutions have stressed that this is but the start and have talked of regional and even global ambitions.

“This could get very exciting,” says Sameer Abdi, head of Ernst & Young’s Islamic finance division. “Size matters. The smaller Islamic banks are doing well, but in niche markets and with niche products, not as universal banks.”

Yet the speed and scale of the start-ups is creating risks. The new entrants and the expansion plans of existing large Islamic banks, such as Dubai Islamic Bank, Kuwait Finance House and Al Rajhi Bank in Saudi Arabia, are straining the dwindling stock of bankers familiar with Islamic finance. “The new institutions are struggling, as are the older ones, which are losing talent to the newcomers,” says Mr Abdi.

Al Hilal Bank found it “very, very difficult to recruit” the staff it needed, admits Eissa Mohamed Al Suwaidi, the bank’s chairman. “There was some ‘bartering’ involved.”

Al Hilal and other banks have thus been forced to recruit staff from conventional banks, both regional and international, and to retrain them in the principles of sharia -compliant finance.

The global potential of the Islamic banking market is “conservatively” estimated at $4,000bn, according to Moody’s Investor Service, while the current market is estimated at only $700bn, most of it in the Gulf. With such potential it becomes clearer why governments, eager to please their Muslim populace, are encouraging more banks to start up and expand outside domestic markets.

But the Islamic banking industry brings with it a new set of risks for managers to manage. The institutions are hamstrung by the lack of a viable Islamic interbank market. While deposits may be redeemed immediately, Islamic bank assets are usually backed by real estate, and are therefore illiquid. This forces Islamic banks to hold more cash or liquid assets than conventional peers to pare illiquidity risks.

Al Hilal and Noor Islamic Bank are in a good position to attract staff and ease liquidity requirements thanks to the financial muscle of their backers, the Abu Dhabi and Dubai governments.

Due to this, they are likely to embark on an aggressive acquisition spree to expand in the region and elsewhere, says Mr Abdi. “Where there is a will there is a way, so they [the governments] might have to find their cheque books. A $20bn-$30bn bank in the next two or three years might be possible.”

Noor Islamic Bank and Al Hilal are not the only contenders. In Saudi Arabia, Alinma Bank has launched with SAR15bn ($4bn) in capital raised in an initial public offering. And in Bahrain, Saleh Kamel, who controls the Dallah Albaraka Banking Group, plans to found an $11bn bank called Ummar Bank next year.

Banks with such hefty balance sheets may not only gain more retail customers through extensive branch networks, which are often capped in the Gulf for international banks such as Standard Chartered and HSBC, but also capture a larger slice of the vast infrastructure finance projects planned in the region.

“There’s an indirect but powerful link between the Islamic financial industry and the performance of the oil market,” says Anouar Hassoune, a banking analyst at Moody’s. “As long as oil remains expensive, which is our base-case scenario, Islamic banking will keep on growing successfully.”

Source: The Financial Times

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Written by Suapi Shaffaii

July 9, 2008 at 3:25 am

Posted in Human Talent

Tagged with ,

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