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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


Written by Suapi Shaffaii

July 9, 2008 at 3:25 am

Posted in Human Talent

Tagged with ,

Skills shortages still hamper Islamic finance

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Points of Essence:

  • Malaysia continues to face shortage of qualified talent in the Islamic finance industry which may impede its targeted 2010 deadline for 20% of the banking sector to convert to Islamic finance.
  • A structured inhouse training programme and the setting up of various Islamic finance training institutions will be a long term measure to address the shortage.

By Farhan Bokhari

Published: July 3 2008 02:22 | Last updated: July 3 2008 02:22

More than 20 years after Malaysia launched its ambitious plan to become a centre for Islamic banking and finance, the country’s central bank – Bank Negara Malaysia (BNM) – is trying to persuade global groups to enter the market.

Its move comes at a time when a shortage of employees who are qualified to assume positions of responsibility is proving a stumbling block for the industry.

With specialist bankers, financiers and other professionals in demand, where are the specialists to take on the responsibilities and keep up with the growth?

Malaysia may be able to offer some useful insights.

The central bank’s push to attract more international institutions specialised in the area comes ahead of its 2010 deadline for 20 per cent of the banking sector to convert to Islamic finance. This compares with approximately 15 per cent at the moment.

For BNM, “what is important is the quality” of that transition, says Dato Mohammad Razif Abdul Kadir, BNM’s deputy governor. And the quality of institutions is directly linked to the extent that some of the most promising professionals are attracted into this field.

Malaysia’s efforts to promote the growth of the sector may, in part, be driven by domestic considerations.

It is a predominantly Muslim country in Asia, which has successfully established the concepts and also the practice of Islamic banking and finance.

But the push also coincides with the oil boom in the Middle East, which has prompted Arab investors, armed with petro-dollars, to seek investments outside their region.

With oil prices moving from one historic high to the next, and analysts predicting further increases, there is not likely to be a shortage of money pursuing investment opportunities.

BNM hopes that laying strong foundations as a global destination for Islamic investors will make a difference to opportunities.

In the Middle East, some of the main industry participants are the first to acknowledge the problem of the shortage of personnel.

“We are in a situation where so much demand for talent is chasing very few people,” says Hussain al-Qemzi, chief executive of the Dubai-based Noor Islamic Bank, launched earlier this year.

For Mr Qemzi, making the bank prominent in the sector will depend to a large extent on its finding professionals who are not only qualified, but have the relevant experience too.

In Malaysia too, senior policymakers and executives at Islamic banks highlight the importance of finding top-ranking professionals to underpin the success of their business.

“We are aggressively looking at the new environment. We are not just looking at the domestic environment. We are also looking at the internationalisation of Islamic finance” says Mr Kadir of BNM.

“The biggest challenge [for Islamic banking and finance] is the people” says Yakub Bobat, managing director of HSBC Amanah in Malaysia, the Islamic banking arm of HSBC.

Rafe Haneef, managing director for Fajr Capital, an Islamic investment management company in Kuala Lumpur, the Malaysian capital, stresses the number of professionals that is required for the smooth functioning of this area of business.

“It is not just the practitioners but also the scholars. What about the lawyers, the tax accountants? We need all of them,” he says.

One answer is to offer academic training in Islamic finance. In the past few years, locations such as Malaysia and Dubai have begun hosting academic and professional programmes.

These are aimed at young aspiring Islamic banking and finance professionals, as well as those who already have experience in mainstream banking.

Bankers note that such academic opportunities are no substitute for on-the-job training in banks and financial institutions, where new employees are taught formally and given time off to study.

However, companies have been slow to adopt this approach for a variety of reasons, including the fear of having their trained professionals poached by rivals.

“This is a serious gap. If all Islamic institutions were to embark on structured inhouse training programmes, maybe there is a chance the shortages could be met,” says a senior banker.

“If Islamic banks and other institutions were to look at their own long-term interests, overcoming human-resource shortages would suit everyone.”

Others note that the way forward may be eased by following the example of countries such as Malaysia, which has encouraged growth of the Islamic finance industry.

While a number of countries in the Asia-Pacific region, including Pakistan and Indonesia, have supported the growth of Islamic banking and finance, they fall short of the Malaysian example of a country that has seen the active involvement of the central bank, which has linked with a network of financial institutions participating in the sector.

Source: The Financial Times

Written by Suapi Shaffaii

July 4, 2008 at 7:23 am