Thursday, October 25, 2012

Islamic banks ready to step in as HSBC pulls back

HSBC Holdings said it would shrink its global Islamic banking operations, National Bank of Abu Dhabi revealed very different plans: it aims to triple the contribution of its sharia-compliant operations over the next eight years.

The increase in business suggests that rather than being a sign of weakness in the Islamic finance & Banking sector, HSBC's decision reflected its own business priorities.

HSBC announced early this month that except for wholesale banking operations, it would no longer offer Islamic products in Britain, the United Arab Emirates, Bahrain, Bangladesh, Singapore and Mauritius.

It said it would focus its Islamic finance business on customers in Malaysia and Saudi Arabia, while keeping a limited presence in Indonesia.

Some analysts speculated the decision reflected doubts about the long-term profitability of Islamic banking - perhaps dissatisfaction with costs that can be higher than conventional banking in some areas. Frequent asset transfers can attract repeated taxation, while buying the expertise to structure complex sharia-compliant transactions is expensive.

The details of HSBC's announcement, however, suggest the bank will not come close to pulling out of Islamic finance, and may even continue growing in some parts of the industry. The bank estimated it would keep about 83 percent of its Islamic business revenue after the move.