Al Baraka Banking Group targets ambitious foreign ventures

Bahrain-based Islamic lender is forecasting an 8 per cent increase in assets this year.

Chief Executive of Al Baraka Banking Group Adnan Yousif. Hamad I Mohammad / Reuters

Al Baraka Banking Group says it plans to almost double its assets to US$46 billion in the next five years by expanding its network and entering countries such as Morocco, Indonesia and China.

The Bahrain-based Islamic lender, which had assets of $24bn at the end of June, is forecasting an 8 per cent increase in assets this year.

“Morocco is a very good country as far as banking and I think there is a good demand to expand in that market,” said Adnan Ahmed Yousif, the bank’s chief executive.

“Indonesia is the largest Islamic country and we believe they are still behind in the number of Islamic banks. The Chinese are also open to Islamic banking.”

Al Baraka is also forecasting a net profit increase of 10 to 12 per cent this year as it grows its businesses across geographies.

The bank’s net profit last year rose 7 per cent to $275 million from a year earlier. Second-quarter net profit attributable to equity holders rose 2.3 per cent year on year to $44.84m.

According to the credit ratings agency Standard & Poor’s, the assets of Islamic financial institutions, presently worth $1.8 trillion, are forecast to reach $3tn in the next couple of years.

Growth in the Islamic financial industry is driven by demand in Malaysia and Arabian Gulf countries.

Al Baraka – which is present in 15 countries in the Middle East, Africa and Asia – aims to tap the growth as it seeks to expand its branch network by 75 per cent to about 1,000 branches by the end of this decade.

Its entry into Morocco, which could happen by the first quarter of next year, with 25 branches possible there in five years’ time, said Mr Yousif.

Al Baraka is also expecting to venture into Indonesia by next year, and it might enter the Chinese market by 2018.

Additionally the bank is focusing on expanding its branches in countries such as Tunisia, Turkey, and Pakistan.

Islamic banking has picked up in the Middle East and North Africa, with countries such as Morocco introducing Sharia-compliant banking to tap growth in the sector, and improved sentiment towards Islamic finance since the Arab Spring.

In January, Morocco introduced a law that will open the doors to Islamic lenders for the first time.

Al Baraka’s various business units are also in the process of issuing Islamic bonds that comply with Basel III banking standards that are being phased in up to 2019.

Its Turkish unit could issue up to $300m in Tier 1 sukuk this year after launching a Tier 2 sukuk last year.

Next year, the bank’s Jordanian unit could issue $100m in Tier 1 sukuk and the South African unit could issue $50m in Tier 1 sukuk. The Egyptian unit could issue up to $100m in Tier 1 sukuk next year, depending on regulatory changes in the country.

Al Baraka, which is listed on the Bahrain Bourse and Nasdaq Dubai, is also expanding its product offering to help boost profitability and expand its balance sheet.

The bank is focusing on shoring up its Musharaka business, which has been eclipsed by the dominance of Murabaha business.

Musharaka is an Islamic finance structure that allows parties to share the profit and loss of a business, versus conventional banking reliance on interest payments.

Murabaha, a cost plus financing technique, is the more popular form of Islamic financing.

“Our focus in the past was always on the Murabaha, but now that Islamic banks are able to contribute to the economy, I think they should refocus on the Musharaka business,” said Mr Yousif.

“We should be part of the risk- taking.”

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