Islamic finance institutions add $580bn in assets

Total assets at the world's 100 largest Islamic banks climbed by 66 per cent to more than US$580 billion (Dh2.13 trillion) last year, according to a report by Asian Banker. The dramatic jump reflects the rapid growth of the Islamic finance industry as a whole, analysts say. While little reliable data exists on Islamic assets globally, the overall industry is by some estimates worth about $1 trillion and growing.

"Overall, 2008 was a relatively good year for the Middle East and Asian financial sector, with banks including Islamic financial institutions posting stellar performance in the first half of the year," said Khalid Howladar, a senior credit officer for Islamic finance at Moody's in Dubai. "The slowdown fully took effect only in the third and fourth quarter." Iranian banks, which are required by law to operate along Islamic principles, made a big showing among the largest Islamic lenders on the list compiled by Asian Banker. Bank Melli Iran was the largest Islamic bank in the world at the end of last year with more than $45bn in assets, and Bank Mellat, another Iranian lender, came in third. Iranian banks took seven of the top 10 spots on the list and accounted for 40 per cent of Islamic bank assets, the report said.

Gulf banks also placed highly on the list, however. Saudi's Al Rajhi Bank, Kuwait Finance House and Albaraka Banking Group in Bahrain all made the top 20. Four of the UAE's banks were also among the 20 largest: Dubai Islamic Bank was eighth-largest; Abu Dhabi Islamic Bank was 11th-largest; Emirates Islamic Bank was 17th-largest; and Noor Islamic Bank came in 20th. The UAE, Saudi Arabia, Kuwait and Malaysia together accounted for 40 per cent of Islamic bank assets.

"Within the UAE, banks including Sharia-compliant financial institutions registered 50 per cent growth in assets in the first half of 2008 alone, which is reflective of the overall banking sector at that time," Mr Howladar said. Islamic finance is thought to be growing especially quickly in the Gulf, where high oil prices had helped bolster deposits at Islamic banks. The oil-based wealth in the region has also led many conventional banks and investment firms to launch Shariah-compliant banking windows and investment funds.

But while Islamic bank assets grew despite the global financial crisis, other subsectors of Islamic finance have fared less well. Issuance of Islamic bonds, or sukuk, sagged last year as appetite slackened among international investors for debt from the Gulf, which had been the largest source of sukuk issuance previously. Islamic investment vehicles have also suffered from the financial crisis. Many invested in property and stock markets, both of which tumbled last year.

Growth of Islamic bank assets in the report was helped greatly by the launch of Public Islamic Bank in Malaysia. Without new assets from the creation of the subsidiary of Public Bank Malaysia, the assets would have grown 29.7 per cent. @Email:[e-mail] [e-mail]