REUTERS: SINGAPORE - Islamic banks have been barely bruised by the global credit crisis so far, but the worst is yet to come as falling property and commodity prices and slowing economies start to hit the sector.
As the global economy buckles, credit lines tighten and consumer confidence crumbles, Islamic institutions -- which manage an estimated $1 trillion worldwide -- will not escape the pain that is plaguing conventional lenders in the West.
Sliding commodity and property prices in predominantly Muslim countries in the Middle East and Southeast Asia are likely to have a particularly strong impact on the sharia market due to the industry's heavy reliance on those assets to support deals.
"Islamic banks are heavily exposed to real estate and private equity in many of these markets," said Abdulkader Thomas, chief executive of Kuwait-based sharia advisory firm Shape Financial.
"If these markets are overpriced -- which some of them are -- then Islamic banks could well be particularly exposed."
Strict lending requirements, insistence on transparency and requirements that physical assets underpin transactions helped the Islamic industry survive the first round of the U.S. subprime mortgage meltdown, which fueled a worldwide credit crunch.
But the global financial crisis has worsened dramatically in recent weeks, sparking heavy selling of stocks, commodities and oil and threatening to plunge developed and emerging economies alike into recession.
Many companies are freezing or slashing spending and cutting jobs, and consumers are reining in spending. Economic Woes, Commodity Slump Could Hit Islamic Banks >>> By Y-Sing Liau – Analysis | Monday, October 13, 2008
REUTERS: Some Gulf Sharia Banks in Peril
SINGAPORE - Some Gulf Islamic banks could fail as frozen credit markets and slumping property prices take a toll, but government aid should save the industry from a prolonged slowdown, a leading sharia lender said on Tuesday.
Islamic banks have hardly felt the chill of the credit crisis so far. But some industry experts warn that the $1 trillion industry will not be spared from the fallout as prices of commodities, property and oil slide. All are core drivers of the Islamic financing sector.
Sharia lenders in the Gulf, unlike their peers in Asia, would be harder hit by the credit rout due to their greater direct exposure to the property market, said Badlisyah Abdul Ghani, chief executive of Malaysia's CIMB Islamic Bank.
"The sovereign-backed Islamic banks are very safe and they will be supported by the sovereign if they have problems in liquidity," Badlisyah told the Reuters Wealth Management Summit in Singapore.
"But for privately owned banks, they would feel some difficulty. Whether or not they're going to fail is anybody's guess but the expectation is that some will." >>> | October 14, 2008
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