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Islamic Finance in Europe
Professor Rodney Wilson
Banca d’Italia
Seminar on Islamic Finance
Rome, November 11th 2009
Outline
The current environment for Islamic banking in Europe
Retail banking: Islamic Bank of Britain
Shariah compliant asset managers
– Bank of London and the Middle East
– European Islamic Investment Bank
∂
– (European Finance House)
– Gatehouse Bank
Limitations of Islamic banking in Europe
Future prospects for Islamic finance in Europe
The current environment for
Islamic banking in Europe
Retail
– Recession has adversely affected Muslim communities in
Europe
– Rising job insecurity and unemployment
– Reluctance to take on additional financial commitments: deleveraging
∂
Asset management
– Significant capital losses with equity investment, although
recent gains
– Commercial real estate market remains very depressed
– Exits from private equity often problematic
– Little sukuk activity
Retail banking: Islamic Bank of Britain
Profile
– Founded 2004
– AIM listed
– Majority stake Qatari private shareholders
– 48,000 customers
∂
Branches
London
Birmingham
Number
4
2
Leicester
Manchester
1
1
Retail banking: Islamic Bank of Britain
Financials, June 2009
– Deposits increased by 9% to £172 million
– Home Purchase Plan accounts for asset growth to
£14.4, double December 2008 figure
– Loss of £4.6 million for∂6 months to June 2009
compared to £3.1 million loss for same period to
June 2008
– Income from Islamic financing transactions fell
from £2.4 million for 6 months to June 2008 to
£0.8 million for same period to June 2009
– Costs under control, but returns on financing have
slumped
Bank of London and the Middle East
Profile
– Founded August 2006
– Owned by Boubyan Bank of Kuwait which has
recently been taken over by National Bank of Kuwait
Focus
–
–
–
–
∂
Treasury services for Islamic financial institutions
Corporate banking
Private banking and wealth management
Investment banking
Bank of London and the Middle East
Financials
– In first half of 2009 overall loss £9.8 million
from a total operating income of £17.5
million
∂
– Loss largely accounted
for by impairment
charges with respect to 3 clients
– Value of assets fell from £867 million in
December 2008 to £783 million by June
2009
London based Islamic banks: financial
indicators, 2009, £ million
Assets Customer
deposits
IBB
197
∂
Shareholder Losses
equity
172
21
4.6
2.7
163
14,8
EIIB
278
BLME
782
5.0
247
9.8
54
1.3
37
8.5
Gatehouse
Limitations of Islamic banking in Europe
Retail banking
– IBB has high fixed costs in relation to customer
numbers
– Lack of economies of scale and scope
– Conventional banks offering Islamic products have
cost advantages as no∂need to establish new
branches or IT systems
– Most British Muslims continue to use high street
banks
– Many Muslim families have low incomes
– Deposits and financing for very small amounts
from East Ham and Whitechapel branches of IBB
Limitations of Islamic banking in Europe
Investment banking
– Wholesale Islamic banks such as EIIB, BLME and
Gatehouse too small to be involved in major M&A
activity
– Focus on accepting deposits from other banks,
including their Gulf based
∂ parents
– Treasury activity largely involves commodity
murabaha, a more expensive alternative to an Islamic
money market
– Attempt to build wealth management business, but
much competition, including from long established
conventional banks
Shari’a compliant fund management
Screening
– Sector screens
– Financial screens
Early European Islamic funds
– Kleinwort Benson, 1986
– Flemings Oasis Fund, 1996
Current fund offerings
–
–
–
–
–
–
∂
HSBC Amanah Luxembourg and Dublin based funds
Asset management by Aberdeen and Pictet
Oasis Dublin based Crescent Global Equity Fund
Deutsche Bank Islamic Equity Builder Certificates
Scottish Widows Islamic Global Equity Fund
Mutual Shariah Baby Bond
Future prospects for Islamic finance in
Europe
European single market
– National regulation remains, but banking passport
– FSA most pro-active, but Banque de France supportive
Islamic capital markets
– UK Treasury and FSA have
∂ made legal changes to
facilitate sukuk issuance
– No UK sovereign sukuk, but aim to encourage corporate
sukuk
– Legal changes introduced in France, including provision
for trusts as special purpose vehicles for sukuk