Islamic banking is expected to constitute around 30 per cent of the total banking sector in the next three years in the UAE, Douglas Beckett, the Head of Retail Banking at Mashreq Bank has said.
In an interview with Alrroya.com, Beckett said that Islamic banking, broadly referred to as Sharia’h finance, is increasingly becoming the mode of banking over conventional methods and is attracting all types of customers.
“Islamic banking represents a considerable portion of the banking industry. In view of this, at Mashreq Bank, we have launched the Islamic Banking Division known as Mashreq Al Islami, which aims at enhancing our overall customer experience,” the executive said.
“Initially established in 2006 as ‘Badr Al Islami’, this Islamic Banking Division of Mashreq is advised by the world’s most respected Shariah supervisory board, comprising of Sheikh Abdalla Bin Suliman Al-Manei as Chairman with Sheikh Nizam Yaqouby and Sheikh Dr Mohammed Al-Gari,” Beckett added.
Recently, Mashreq Al Islami, won two gongs at the fifth annual Islamic Business and Finance Awards for “Best Islamic Window” and “Best Advertising Campaign”. The Islamic Business and Finance awards are recognised around the world as among the most distinguished awards programmes within the financial industry.
Mashreq Al Islami offers a full suite of Sharia’h compliant products and services for companies including Advisory Services, Structured Finance Solutions, Sukuk Advisory, Islamic Investment Products and Islamic Treasury Products and a full range of consumer products such as current, savings, investment accounts, home loans, vehicle loans and personal finance products.
“In the next three years, Sharia’h finance is expected to contribute to around 30 per cent of the UAE’s total banking sector,” Beckett said, adding, “We do expect growth to be higher than in conventional banking, possibly low double digit in a fairly slow economic environment with annual GDP growth of 3 per cent to 4 per cent over the period.”
Unsecured loans a risk with expat population
The UAE banks have gone through challenging times for the last two years, with plummeting equity markets, severe liquidity crunch and eroding property valuations taking a toll on earnings. The real impact of negative global economic environment was felt in 2008, when the total fourth quarter profitability of local banks went plunging down by 82.8 per cent over the corresponding of 2007, with most banks booking significant loses.
“It’s true, it has been a tough couple of years. But clearly we are through the worst of it, in a period of stability and probably gradual recovery,” Beckett said, adding, “Although it won’t be a strong rebound.”
According to figures, with the exception of First Gulf Bank, National Bank of Ras Al Khaimah and United Arab Bank, the fourth quarter profitability of all banks took a severe beating. Abu Dhabi Commercial Bank recorded a loss of Dh262 million against Dh502m profits achieved in Q4 of previous year. Emirates NBD, which recorded a profit of Dh1.2bn in Q4 of 2007, saw its profits for 2008 Q4 decline 98 per cent to Dh14m. Last year’s financial year figures have not been released yet, but reports from respective banks showed sharp contract in loan growth occasioned by bad loans.
“I think we all took too much risk with fairly low income, borrowers in a population with fairly high transient expatriate make up and no credit bureau. We need to learn to compete on quality of our value proposition and our service, not on our willingness to lend,” Beckett said.
Moving forward, Beckett said the banking industry has recognised that “there are risks in lending and that profits are only made when loans are repaid, not when they are granted.”
Pegged currency restricts policy options
On the issue of inflation fears due to rising oil and commodity prices in the market, Beckett said; “With a pegged currency, policy options are restricted. I don’t think we are going to see inflation emerging as a challenge for some time. There is a period of de gearing we need to go to first. And as rents continue to reduce due to property oversupply there should be a natural hedge in the impact of any imported inflation. I don’t see that situation changing in the near term.”
“The major concern is overcharge of supply in residential and commercial real estate which will be a negative factor for a number of years. Our response to this difficult and slow growth environment is to try to go deeper with our existing customers and to retain the profitable customers we already have as the first priority. This requires a different business model from the pre crises model which has focused on new customer acquisition. It is a different challenge for us and we need to learn how to do it. Loyalty becomes a clear priority in this “new reality”.”
As the New Year begins, what is the most important lesson the banker has drawn from the financial crisis and current economic landscape?
“The global financial crisis of 2008-2009 left us all with some learnings,” he said.
“While we thought we were invincible during the boom few years ago, the economic situation made us realise that we are just as vulnerable as the rest of the world.”
Douglas Beckett joined Mashreq as Executive Vice President & Head of Retail Banking Group in January 2008. Prior to joining Mashreq, he spent three years as Head of Retail Banking at Qatar National Bank (QNB) in Doha.
Earlier, he developed a 23-year career with Standard Chartered Bank (SCB) during which he worked in a number of countries across the Group in Asia, Europe and the USA. Prior to joining QNB, Douglas was responsible for SCB’s retail franchises across Africa which operated in more than 13 countries.
He says his strategy is to reposition Mashreq as the most convenient bank in the UAE and region, and to develop its brand as a more mass affluent market leader in the UAE.
Consider also reading:
UAE eyes shariah money market after law change
Islamic finance mulls global shariah advisers
Gulf states eye common shariah council for banks
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