A round-up of news from the Islamic banking sector – Seychelles-registered Bank of Muscat International Offshore considers Shari’ah-compliance; HSBC Bank Oman and Meezan Bank in Pakistan may merge; and Standard & Poor are the bearers of (relatively) bad news.

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Could it be a case of ‘paradise found’ for Islamic banking in the Seychelles?

Something far out first: 1500 kilometres (932 miles) east of mainland Southeast Africa, the 115-island country of the Seychelles has yet to venture into the world of Islamic finance.

However, the Seychelles-registered Bank of Muscat International Offshore (BMIO) is considering its introduction.

The Al Salam Bank of Bahrain, which owns 50% of shares in BMIO, is talking with the Seychelles authorities about future plans following the recent approval of BMIO’s reorganisation.

Details of the reorganisation are complex, but to cut a long story short the governor of the Central Bank of Seychelles, Caroline Abel, says it took about 8 months for everything to complete.

An Al Salam delegation was in the country in July to talk about making BMIO a Shari’ah-compliant bank.

CBS says the Seychelles government commissioned a ‘recent’ study which ‘has identified the potential for Islamic banking to contribute significantly towards Seychelles’ GDP’.

Nothing has been decided yet, but if they can get a move on the Seychelles may well turn to Islamic banking sooner rather than later.

This month, the State Bank of Pakistan (SBP) has given its ‘in-principle approval’ for the amalgamation of the HSBC Bank Oman S.A.O.G. operations in Pakistan with Meezan Bank Limited (MBL), the country’s first Shari’ah-compliant bank.

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The next step is for Meezan Bank to get the shareholders’ nod for the proposed merger.

As is the way with these things, the SBP says its Islamic banking department was ‘reviewing’ the conversion of HSBC Bank Oman’s conventional portfolio into the Islamic modes.

The deal is not quite done yet.

Apologies for ending on a slightly downbeat note. A report from the Standard & Poor’s (S&P) Ratings Services says Islamic banks in the Arabian Gulf region face a gradually weakening operating outlook in 2015-2016, but offer hope for the long term.

Titled ‘Gulf-Based Islamic Banks Grapple with Weakening Regional Economies’, the report claims that weak oil prices will have an effect.

As a result S&P thinks this will ‘gradually increase credit losses at Islamic banks in 2015, leading to lower net income growth than in 2014’.

S&P expects banks in the region to ‘adopt a conservative stance in 2015 and maintain strong levels of capital while looking to further diversify their funding base’.

The report focuses on ‘pure-play commercial Islamic banks’ and does not take into account the Islamic assets of conventional banks in the Gulf Cooperation Council (GCC).

There are even more exceptions. S&P also excludes Islamic investment banks whose revenues are ‘primarily driven by capital markets and investment-related activities’.

S&P’s research shows that growth has slowed down. GCC-based Islamic banks increased their balance sheets by an average of 15.2% between 2009 and 2014, while their ‘conventional peers’ registered an 8.8% increase. In 2014, Gulf-based Islamic banks grew at a rate of 12.6%, against 9.6% for conventional banks.

It adds ‘though the report expected 2015–2016 to be relatively less benign for Gulf Islamic banks in general, we still believe the long-term supportive factors for these banks remain unchanged’.

And a bit of happy news for some – S&P thinks banks in Qatar, Saudi Arabia, and the United Arab Emirates have the best opportunities for growth.

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By Antony Peyton.

by IBS Intelligence
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