LONDON, 2 May 2005 — Perhaps the governments and banking regulators of the six Gulf Cooperation Council (GCC) states can take a cue from their Malaysian counterparts. While the GCC countries are still dragging their feet on a full customs union, Kuala Lumpur has been pressing ahead with a new found urgency especially of its financial liberalization policy.
If reciprocity was the basis for any bilateral economic and market relationship between Malaysia and the GCC, then Kuala Lumpur is well ahead. In the banking sector, for instance, Bank Negara Malaysia, the central bank, has over the last six months approved Islamic banking licenses to Kuwait Finance House; Saudi Arabia’s Al-Rajhi Banking and Investment Corporation; and a consortium of banks led by Rusd Investment Bank, Qatar Islamic Bank, and Kuwait-based Global Investment House. In addition it has approved the acquisition of a 30 percent stake by the Jeddah-based Dallah AlBaraka Group in RHB Islamic Bank, which is one of five local banking groups also to get licenses to set up dedicated Islamic banks.
“Offering cross-border services in the GCC,” stresses Hussain A. Al-Qemzi, the general manager of Sharjah Islamic Bank (formerly National Bank of Sharjah), “is in our future plan and we will be looking at the other GCC countries. Our plan extends to 2007. But for the moment we want to establish our roots in the UAE first, before starting to look at new markets. But we are keeping an eye on developments in the other GCC markets. We are aware of the moves to unify GCC currencies and customs; and the benefits this can bring. We have witnessed this sort of unification at the UAE federal level. Once this happens across the various industries at the GCC level, we have to be prepared for this”.
Al-Qemzi is keen to use the UAE federal experience as a precedent and perhaps a microcosm for the future development of a unified single market in the GCC, bereft of these petty constraints and nationalisms.
Asked why the National Bank of Sharjah changed its name, Al-Qemzi stresses that after the conversion, a new management team came on board. “We conducted research on a new strategy for the future growth of the Bank. We identified the weakest links; and found that we were concentrating our business primarily on just one area of the UAE, (namely Sharjah). It is important that if we want to improve our rating we have to diversify our business both industry-wise and geographically. We found that people were not aware that the National Bank of Sharjah was an Islamic Bank and were also confusing it with the Bank of Sharjah. We conducted surveys in three major markets in the UAE — Sharjah, Dubai and Abu Dhabi, and concluded that we had a choice of either spending money on the launching a major marketing campaign to make it known that we are an Islamic bank; or we could use the word Islamic in our title to make sure there was no confusion.”
Al-Qemzi claims that this strategy has already resulted in a very positive feedback, with the rate of account openings and the volume of deposits increasing substantially at SIB’s ten or so branches.
SIB is capitalized at AED1,000 million and is confident that this level of capitalization is suffice to meet the requirements of its balance sheet; investment portfolio; and those of the Central Bank of the UAE, especially in terms of capital adequacy and reserves.
Al-Qemzi believes the UAE market (and by implication the GCC market) is big enough to accommodate as four major Islamic banks. “The UAE is the second largest economy in the GCC after Saudi Arabia. And it is growing. Even during the difficult economic times, the UAE economy continued to grow. GCC governments have recently also been promoting trade between member countries, which has helped the UAE greatly. The presence of more banks also means better competition, which is good news for customers. SIB, for instance, is also targeting non-Muslim expatriate customers. The challenge for Islamic banks in the UAE is that conventional banks are currently tapping into your captive market. So there is no reason why Islamic banks cannot do the same if they can provide an equal service. SIB, for instance, is already providing Shariah-compliant mortgage financing to non-Muslim customers.
However, he acknowledges that consumer behavior in general in the UAE and GCC is still in an evolutionary stage. “Sometimes you will find governments within the UAE federation will favor their own banks; and give priority to business from their emirates. This, however, is starting to change. Sharjah and Dubai, for instance, are starting to use other banks. Retail banking customers are becoming very discerning and always on the look out for added value,” he adds. He warns that the banking and financial market — both conventional and Islamic — may be skewed by the huge surplus and high liquidity in the region. The acid test will be how banks perform in recession.