| One of the most active Middle Eastern Islamic banking organisations has been the Al Baraka Banking Group (ABG), led by the redoubtable Adnan Ahmed Yousif, who is also the Chairman of the Union of Arab Banks. Banker Middle East takes a look at what ABG is doing by way of its expansion plans, stress tests and boosting the Middle Eastern Sukuk market |
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The banking group puts as much emphasis on its corporate social responsibility (CSR) roots as it does on its extremely broad global footprint. It has a presence on several continents and Europe, more specifically France is next on its list. Al Baraka has operations in Jordan, Indonesia, Pakistan, Bahrain, Turkey, Syria, Lebanon, Tunisia, Algeria, South Africa, Sudan and Egypt.
“We consider the role of CSR in our organisation to be essential to the application of the principles derived from divine power and on which our business activities in all the countries in which we operate are based. All our subsidiaries embrace Islamic ethical principles and apply them to their banking operations and services,” the bank says on its website.
ABG’s website lays out its objectives and achievements in straightforward bullet point style, explaining for instance that the responsibilities for the bank’s Board includes ensuring that Al Baraka Group’s operations are supported by a reliable, sufficient and well integrated information system; holding the management accountable for results and ensuring that Al Baraka Group and its units’ operations are supported by an appropriate control environment i.e. that compliance, risk management and financial control and reporting functions are well-resourced and structured.
Al Baraka’s Shari’ah Supervisory Board consists of Sheikh Dr. Abdul Sattar Abu Ghuddah as the Chairman and includes Sheikh Abdullah bin Sulieman Al Mannea, Sheikh Dr. Abdulatif Al Mahmood, Sheikh Dr. Abdulaziz Bin Fowzan Al Fawzan and Dr. Ahmed Mohyedeen.
The bank’s net income rose by three per cent to $95 million for the first six months of 2010, while the total operating income was up by two per cent to reach $307 million, up from $302 million a year earlier.
Adnan Ahmed Yousif is the President and Chief Executive and Board Member of Al Barka Banking Group and winner of Banker Middle East’s ‘Banker of the Year’ award for 2010.
He has been a director since its inception and the President and Chief Executive since August 2004. He is the Chairman of Jordan Islamic Bank, Banque Al Baraka d’Algerie, Albaraka Turk Participation Bank, Albaraka Bank South Africa, Egyptian Saudi Finance Bank and Al Baraka Bank, Lebanon.
He also holds directorships in several Al Baraka Group subsidiaries. He has more than 32 years of international banking experience and was appointed Chairman of the Union of Arab Banks in May 2007. He holds an MBA from University of Hull, UK.
Banker Middle East caught up him as he waxed lyrical about expansion plans, the new corporate identity, an Islamic megabank and the Saudi mortgage law.
“We expect the number of branches of ABG banking units to exceed 450 branches over the next three years, compared with about 300 branches at present,” he said.
“Syria is a growing market and there are a lot of changes [taking place]. It opened the door for foreign investors, but for us, because we are located in Jordan with 64 branches, in Turkey we have 110 branches, in Lebanon we have eight branches, this kind of proximity to Syria will assist Syrian exporters and importers and that is why our penetration of the Syrian market is different from other institutions.”
The first half of the year also saw the completion of the launch of ABG’s new identity, the last of which was completed in Sudan, Egypt and Jordan, and as a result all the banks of the group now carry the ABG logo and identity.
“We intend during the next phase to start opening branches in all major cities in Syria through which the bank will provide different Islamic commercial banking services. We are also proud that the bank’s IPO was received with such a huge response that exceeded all expectations as it was oversubscribed by more than four times. The capital of Al Baraka Bank Syria is SYP 5 billion ($100 million).”
You have a presence in Egypt, in Tunisia and in Algeria. What about Libya?
“We have just received approval to open our office in Libya. Libya is a big market, like Syria and it is open for foreign investors and I think that we should get involved,” said Yousif. “Right now we are covering the trade [side] and later on we will go for the retail.”
ABG’s strategy for Libya seems to be the same as that for Syria in which it gradually spills over from stronger markets, like Lebanon, Turkey and Jordan in Syria’s case and likewise with Libya where it already virtually surrounds the country with its operations in Sudan to the south, Egypt to the east and Tunisia and Algeria on its western fringes.
ABG is also active in South Africa, which is by any measure still the biggest and most vibrant economy on the huge continent.
Is South Africa still the most promising market for you in Africa?
“We have done a lot of things in South Africa, but we are facing some kind of problem with South Africa. We have a very big growth in liquidity, in deposits, but it has taken us a while to employ this huge liquidity in the market. Don’t forget that South Africa still doesn’t have Sukuk and the cash which we put in the Central Bank still does not give us a return because we don’t recognise the return.
“I think that for banking, South Africa is one of the best. The system is modern and the people at the Central Bank are well-qualified and I consider that the banking system is maybe the best in the whole of Africa and the Middle East.”
When it comes to expansion beyond the near reaches of the Middle East, Yousif is more sanguine and seems to rate France as his best opportunity, ahead of Malaysia, which is no surprise, given that the negotiations to expand into the country seem to have been challenging. There have been reports that DRB-Hicom (which owns 70 per cent of Bank Muamalat Malaysia), which was thought to be in negotiations to sell a stake in the bank to ABG, had ended the talks in an apparent disagreement over the terms, possibly stalling ABG’s plans to have a presence in the country by the end of 2010.
“We now have two outstanding files. One is our expansion in France and another is the expansion in Malaysia and they will be reviewed from now until the end of the year. France is easier than Malaysia because France is a new institution,” Yousif admitted.
What are your plans for France?
“We have already spoken to [the regulators] and they have already indicated a kind of OK for us. We will get a licence as a local bank and it will be 60 per cent [owned] by Al Baraka and 40 per cent will be [owned] by local investors.”
When asked how the European expansion was going, Yousif said, “I will do it after I do Pakistan. Now, we have cleared and finished Pakistan. We have already submitted the application and the deal has been signed and we now have 95 branches.
I think that for banking, South Africa is one of the best. The system is modern and the people at the Central Bank are well-qualified and I consider that the banking system is maybe the best in the whole of Africa and the Middle East.
“We …. obtained all the regulatory approvals for merging the branches of Al Baraka Islamic Bank in Pakistan with Emirates Global Islamic Bank - Pakistan under the name of Al Baraka Bank of Pakistan. The merger will lead to the emergence of a bank that has assets in excess of $582 million and a network of branches covering all major cities and regions in Pakistan,” Yousif said.
ABG has been busy sorting out its corporate identity as it tries to roll out its unified brand. It overhauled the Tunisian arm in late 2009. At the time, Abdul Elah Subahi, the Chairman of Al Baraka Bank Tunisia said that the launch of the new corporate identity of Al Baraka Bank Tunisia was a fitting and timely step as it comes at a time when the bank was going through a comprehensive development exercise that included products and services, jobs and functions and human and financial resources.
“The first half of the year also saw the completion of the launch of ABG’s new identity, the last of which was completed in Sudan, Egypt and Jordan, and as a result all the banks of the group now carry the ABG logo and identity,” Yousif added.
What about separate stress tests for Islamic banks?
“We are doing that, but it is more or less the same [as conventional] because the focus of [stress tests] is about taking scenarios if your deposits are reduced by 20 per cent and how the balance sheet will look. If 50 per cent of your loans are bad loans, what kind of provisions will you make for them and how they will hit your profit and loss (PNL) and hit your equity side? They are simple kinds of scenarios, not complicated ones.
“I don’t feel that we will have separate tests between conventional and Islamic. It is the same. Maybe AAOIFI or the IFSB will issue their own standards, but for the time being most of the central banks are taking experiences from different fields. We took the European [experiences] and also some of our own to create our own standards and then we applied them to see how they worked.”
Sukuk activity in the Middle East, as noted elsewhere in this publication, has hardly been spectacular in the past year and there is a belief that the reason so many Middle Eastern banks have been going to Kuala Lumpur to parade their wares is to get in on the far more active Islamic bond market.
“I believe that the growth in Asia is still good and we will find that there will be more Sukuk there than in this part of the world,” Yousif acknowledges.
What needs to be done to boost the Sukuk market in this part of the world?
“We need to lay a foundation for Sukuk from both the structured side and from the legal side. We cannot just put them in front of a Shari’ah board. What we were discussing at the Al Baraka conference in Jeddah at one of the sessions was about the supervision by central banks of Sukuk. What [the attendees concluded] was that the legal system has to be improved.”
When do you think the Saudi mortgage law will be passed?
“I think it will be passed before the end of the year, from what I understand. In the old days, mortgages were commercial, i.e. five or six years, now they will go beyond that and reach 20 years or 30 years, some of which will give both the borrowers and the lenders flexibility.”
What is the latest news about the Islamic megabank?
“It is being handled by the Islamic Development Bank (IDB). They say that after Ramadan they will start approaching the investors.”
Where are they going to get the staff from?
“First they have to decide where the bank will be. If it is in Bahrain, I think they will find good staff. They are thinking about Bahrain now [as a location for the Islamic megabank], but it depends on the major shareholders.”
Source : http://www.cpifinancial.net/v2/Magazine.aspx?v=1&aid=2453&cat=BME&in=122 - Oct 10, 2010
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