The Islamic banking sector in the Middle East will see a round of mergers and acquisitions in 2009 that will pave the way for banks with billions of dollars in assets, a leading industry body said on Tuesday.
"Consolidation is necessary," Mohamad Nedal Alchaar, secretary general of the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), told Reuters in an interview.
The Middle East banking sector mainly consists of middle-size and small banks with hundreds of million dollars in assets and only a few have billions. "The Gulf will witness mega-mergers, and that is going to be very healthy in view of the current financial crisis," he said, declining to name banks likely to be involved.
On Monday, Bahrain's Al-Salam Bank said it is considering a share offer for smaller rival Bahrain Saudi Bank with a view to combining their operations. So far, there has been very little consolidation in the nascent Islamic finance industry, which has been perceived as a safe haven because it did not invest in toxic assets that are at the core of the global credit crisis.
"When it comes to Islamic banking, big is better, because Islamic banks have stakes in what they do and they have to be well-capitalised to carry out their business," he said.
"An Islamic bank is not just an intermediary, it is a co-owner of real assets." Accounting and Auditing Organisation for Islamic Financial Institutions is a non-profit organisation supported by its institutional members, including central banks and Islamic financial institutions.
Alchaar said the consolidated banks, backed by billion of dollars in assets, would begin to do business with small- to medium-sized enterprises. The other change Alchaar said was necessary for the development of Islamic finance is the standardisation in the way Islamic investment products are structured.
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