The Gulf’s Islamic finance industry is expected to get a boost in the next few months from the launch of several new institutions, bankers say. These include an investment bank in Bahrain, a commercial bank in the UAE and a dedicated Islamic banking unit, to be set up by ABN AMRO of the Netherlands, also in Bahrain. Arab Banking Corporation (ABC) is also working on plans for an investment banking operation.
The first of the new banks is likely to be the Bahrain-based First Islamic Investment Bank, which is about to close a private equity placement. The bank has commitments from Arab and Asian investors above its $50 million target. ‘The First Islamic placement shows that there’s no shortage of cash in the market to invest in Islamic banks,’ observes a banker at another institution. First Islamic is already active in Islamic corporate finance in Southeast Asia through a Malaysian subsidiary (MEED 11:4:97).
The second project is an Islamic bank to be based in Abu Dhabi. Government institutions, notably the Abu Dhabi Investment Authority, are likely to hold a controlling interest in the bank. UAE investors will be able to buy the rest in an offering in the next few months. However, it appears that the management structure of the new bank has not yet been worked out. The UAE already has one Islamic bank in Dubai, but bankers say that Abu Dhabi alone would probably provide enough business for another.
ABC is planning to set up an Islamic institution incorporating its existing investment banking and liquidity management businesses. The original plan was for a consortium bank that would be 25 per cent owned by ABC and managed by it under contract. Other Islamic institutions would buy the rest of the shares. However, the board may decide to set up the bank as a subsidiary of ABC instead. ‘The plan for the bank is going ahead, but it has not been decided which option to take,’ says a bank official. He adds that the bank’s senior management is still in favour of the scheme after a recent change of chief executive (see below).
Bankers at other institutions do not expect a decision until after ABC completes a review of its worldwide strategy: they argue that the subsidiary option makes more sense than the consortium bank. ‘If you’ve got a good operation, why bring in loads of other people?’ says one.