Liquidity woes plague British Islamic banks (By IFN)

Liquidity woes plague British Islamic banks

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UK: Efforts made by the British government to introduce Islamic banking and finance into its mainstream economy, including the recent set up of the UK Islamic Finance Task Force — co-chaired by financial secretary to the Treasury, Greg Clark and senior minister of State at the Foreign & Commonwealth Office Baroness Warsi, who is also the Minister for Faith and Communities at the Department for Communities and Local Government — could remain futile if liquidity issues are not addressed promptly. According to UK-based Islamic finance practitioners, Shariah compliant banks are at a “disadvantage” with regards to current liquidity rules and a lack of availability of liquid assets. However, the country’s lenders are facing a Catch-22 situation as it is currently more cost effective for the government and Treasury to issue conventional bonds over Sukuk; further fueling their liquidity woes. “The cost of funding via conventional sovereign bonds is still more advantageous than the cost of funding via Sukuk,” Haissam Saleh, head of MENA treasury structuring and sales told Bloomberg. Speaking to the newswire, Liam Parker, a representative from the Bank of England said: “An allowance is made for Shariah compliant firms with regard to the instruments they are required to hold to meet their liquidity requirements, but not to the quantity of liquidity.” Although it has been suggested that a highly-rated international organization such as the IDB issue a Sukuk in British pounds in order to create movement in the British Islamic capital markets, there have been no official comments from the multilateral lender. At present, there are five UK-based Islamic banks: Gatehouse Bank, the Bank of London and the Middle East, European Islamic Investment Bank, Qatar Islamic Bank (UK) and the Islamic Bank of Britain (IBB). IBB recently reported a loss of GBP6.99 million (US$10.82 million) at the end of 2012; a GBP2.01 million (US$3.11 million) improvement on 2011 loss, while its total customer financing grew by 86% to GBP129 million, with home financing and retail deposits seeing a 92% and 22% surge respectively.