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Islamic banks insulated from crisis; realty exposure a worry: expert

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Points of Essence:

  • There is a likelihood that Islamic finance may gets entangled with the current credit crunch as it has some exposures to real estate and private equity even though it is generally spared from the crisis.

DOHA: Islamic banks have largely been unscathed by the global financial crisis, but some concerns regarding their heavy exposure to real estate and private equity remain, according to an expert.
Islamic banking/finance would not just survive but grow more rapidly in the coming years, Yehia Elbatrawi, deputy CEO for retail, private and wealth management at Ahlibank said.

Presenting a paper at the third annual World Islamic Infrastructure Finance conference yesterday, he said Shariah-compliant banking is largely unaffected as recent analysis showed the sector has felt no or very little impact from the global credit crisis.

“In future also, such issue will not be of much impact,” he said.

Elbatrawi said Islamic banking was less affected by the turmoil as it did not deal with debt trading and not relied on bonds or stocks.

Moreover, Islamic banking has distanced itself from market speculation that had taken place in European and American banks, he said, adding that Islamic contracts have more clarity.

“Islamic banking provides a better alternative in financing, which is based on the particular need and can be provided through Ijara and Murabaha,” he said.

Cautioning that there are a few areas of concern as Islamic banks are heavily exposed to real estate and private equity, he said “some of these markets are overpriced, which increases the exposure of many Islamic banks.”

Elbatrawi said the Shariah bond market are going through “tough” conditions due to high borrowing cost and many plans are either being delayed or aborted. Highlighting that the earnings of Islamic financial institutions in the region are tied to oil prices, he said an estimated $50bn-60bn had been wiped off in the last three months due the recent drop in the prices of crude oil, metals and grains.


Note: Read a report on the losses of the Islamic equities here.

Written by Suapi Shaffaii

October 29, 2008 at 10:41 pm

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