Eight Islamic Banks account for 20 percent of banking sector

The UAE is home to eight Islamic Banks, accounting for approximately 20 percent of total assets in the banking sector, which comprises 23 percent of total domestic credit as of the end of August 2017, Mubarak Rashed Al Mansouri, Governor of the UAE Central Bank, said.

"The growth of Islamic banking has been supported by robust growth of deposits that has hit 24 percent of total deposits by the end of August," Al Mansouri stated at the opening of the International Financial Services Board Summit, which started here today.

"The Central Bank, in turn, has extended its support to the sector by issuing Islamic Certificates of Deposits and availing the Collateralised Murabaha Facility - a marginal lending facility or discount window - to increase the capacity of Islamic banks to manage their liquidity in compliance with Islamic principles."

The CB governor added that the credit of Islamic banks is mainly benefiting the private sector, particularly real estate activities, trade, financial activities and insurance, as well as small and medium enterprises.

"The Islamic banking system is sound. The capital adequacy ratio hovers over 17 percent. And the Liquid Assets Ratio of 17 percent is well above the mandatory ratio of 10 percent. Therefore, Islamic banks constitute to some extent a pillar of financial stability in the UAE."

He underlined the importance of the recent findings of notable studies, including that by the IMF, purporting that the asset-based nature of Islamic financing helps to curb excessive leverage and investments in highly leveraged assets and short selling, suggesting that this model is likely to foster financial stability and render the global financial system less prone to financial distress.

"Therefore, we welcome and support the IMF and World Bank’s recent steps, specifically 'to collaborate, innovate, and develop the prospects of Islamic finance in a sound and sustainable way, by managing risks appropriately and ensuring financial stability'," the governor said, quoting the IMF Managing Director Christine Lagarde.

"Among the potential beneficiaries of the growth of Islamic financing, we can emphasise infrastructure projects and SMEs for which Islamic Finance seems to be well-suited, thanks to its risk-sharing features and link of credit to collaterals. But, this is no time for complacency. As it will be stressed in expert presentations throughout this summit, the growth of global Islamic Finance has experienced slowdown in the recent years, and the sector is confronted with serious challenges that it needs to address if it is going to continue to develop and prosper to attain its goals and contribute to sustainable and inclusive growth."

Source: Wam