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Tuesday, 6 November 2007

Mega Mideast Islamic bank ‘need of the hour’

DOHA-GT, 5 Nov 07: Global consultants KPMG has suggested creation of a mega Middle East Islamic bank that would not only have a larger capital base to finance large projects but also offer competitive funds.However, it was necessary for the GCC governments to be serious on creating such a bank, which could even acquire foreign banks, by the time the Gulf region embraces common monetary system, according to KPMG director (corporate finance) Darshan Bijur.“I would rather see it (the creation of an Islamic mega bank) in terms of capital size. I would hope that Islamic mega bank will have at least $5-10bn capital,” he told Gulf Times on the sidelines of second World Islamic Infrastructure Finance conference.At the moment, there were only one or two Islamic institutions that have up to about $2bn capital, while others had it in millions, he said.He said a mega Islamic bank - could be created by merging three or four large institutions – could have a bigger capital base to supporting major project financing.The merger was possible only if the GCC governments took it seriously, he added.“At the moment, the mega bank will have to be based in the Middle East since the region has the depositor base and clients want Islamic money,” Bijur said.Asked whether he expected the creation of mega Islamic bank by the time the puts in place a common currency union, he said it was very much possible.Qatar’s Finance Minister HE Yousef Hussein Kamal had earlier asked Middle East banks to explore mergers and acquisition to help them undertake large-scale project financing.“When we talk about projects (whose expenditure runs into billions of dollars, you can’t play that game with the existing capital base. You can do it with Gulf banks but doing it with Islamic banks is different and is challenging (due to lower capital base),” Bijur said.The Gulf region has outlined more than $1tn capital expenditure and Qatar alone has more $130bn worth projects in both oil and non-oil sectors.If the sponsor did not have faith-based requirements to have some Islamic financing at least, then the conventional banks would win every time since funds from them were always cheaper, he said.He said a majority of Islamic tranches were provided by conventional banks and that a majority of recent sukuk investors have been conventional institutions, while Islamic bank participation has been relatively small.However, he said Islamic banking industry would grow rapidly, relative to conventional, in the region and the demand for Islamic tranches would continue to increase.The relative proportions of Islamic and conventional bank financing will change and historical relationships will drive future cooperation, Bijur said.According to Laurence Monnier, Fitch Ratings Senior Director, large infrastructure needs in the region could favour funding by regional banks, including Islamic funds.“Large infrastructure projects lend themselves to multiple source financing and flexibility to tap different markets is key,” she said, adding that long tenor cold be achieved through capital markets.Zamil Group Finance Manager Sattam al-Zamil said its experience was that conventional Banks with Islamic windows were more competitive than Islamic banks.He said coping with the business requirements challenged compliance (with Islamic principles) in implementation but “someone have to change his mindset on certain returns calculation and be able to allow for further participation of equity.”Looking forward, he said the need was on product standardisation and Shariah co-ordination.

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