Arab Bank GroupArab Bank Group

Antoine Sreih, chief executive officer of Europe Arab Bank agrees that Islamic finance has the fundamental structure of sound and ethical banking, which is very important these days. "When you bundle and sell; and bundle and sell investment packages and so on - ownership, risk management, transparency is lost. In the aftermath of the crisis, there is now a flight to conservatism and back to basics. Islamic finance is that basics. What you see is what you get. There is no fund of funds; no complex derivatives. The transaction you see and sense, is what you get. You don't lie to your customer about this or that aspect of the transaction," he explains.

However he is disappointed that the global Islamic finance sector has been slow to react to the crisis but says he remains confident that it will perhaps give the right response in time.

Sreih is a seasoned banker with decades of experience modeled more on the traditional style of banking where financing is aimed at transactions which impact the real economy - trade finance, financing small and medium-sized businesses and corporate financing. In addition the bank has a strong private banking and wealth management function.

This ethos was instilled by the charismatic founder of the Arab Bank GroupArab Bank Group of Jordan, the late Abdul Hameed Shoman and his family. With a history of more than 80 years, Arab Bank is deeply rooted in its home region of the Middle East and North Africa (MENA). However, it also has one of the oldest and strongest branch networks in Europe for an Arab financial institution, servicing customers for the last 25 years in the MENA Bridge - facilitating trade, investment and private banking from North Africa, the GCC (Gulf Cooperation Council) and Middle East to Europe and vice versa.

Two years ago, Arab Bank decided to rebrand its European branches under the Europe Arab Bank label with a total capital of 1 billion pounds. Today it has a network of banks in the UK, Spain, France, Germany, Austria, Italy and a special sister company in Switzerland. "We thought that we are in a very unique and fortunate situation to be in Europe and to be rated and to be supervised by FSA in the UK. On the one side we are in the center of the financial world and on the other side the cultural background and part of a group steeped in the Middle East," says Sreih.

He is optimistic that the UK recession may bottom out after a year but is planning a two-year strategy based on greater prudence, more provisioning, tougher controls, and greater selectiveness in asset allocation and sources of funds. The four core areas of business for Europe Arab Bank are corporate and institutional banking; private banking; treasury services and Islamic finance. The bank has recently set up a dedicated Islamic finance division and has appointed Kazi Hussain, formerly from the European Islamic Investment Bank, to head the division.

"With the deep culture and heritage of the Middle East," explains Sreih, "you have to think Islamic finance, which is now one of our four core business lines. Islamic finance was not part of the original Arab Bank activities in Europe. We have now created a new strategy encompassing Islamic finance, which is one of the fastest-growing banking phenomenon and we know that there is a growing appetite for Islamic finance in the Middle East and even in Europe."

The good news is that more and more Europe Arab Bank customers now prefer either a tranche or the whole financing facility be structured using Islamic finance contracts. The bank is also opening a new area of Islamic finance business for local British companies trading with the MENA region and in the UK. "Frankly we have a number of British companies in our portfolio. It is a question of market education. Some of these companies are very big names. Also there is a growing appetite for Islamic finance in Europe. We have just started about six months ago and we already have more than 200 million pounds in our asset book. We are expecting more than that but we are very selective because we are interested in good quality assets. We have a good commodity Murabaha portfolio for some 60-plus private banking clients through contracts on the London Metals Exchange," explains Sreih.

London has seen five Islamic banks being established over the last two years with another two licenses pending subject to approval from the UK's Financial Services Authority (FSA). According to Sreih, the reason why they have chosen London is simple - because London is the world center of finance. Similarly the supervision by the FSA is principle-based and risk management-based, which makes life easy. This in comparison with France where there is rule-based supervision, under which banks have to comply with chapters and chapters of rules.

"In the UK it is simple - you know the rules and the principles and you comply with them. This may be the attractiveness of the UK to Islamic finance and the size of market. I was expecting faster growth of the sector in the UK the credit crunch and the financial crisis in the last eight months has led to a slowdown. But unfortunately in UK we are entering a recession. I will be frank and say that we have to respond to this recession. We have already revised our plans for the rest of 2008 and for 2009 in this respect," says Sreih.

Europe Arab Bank is full of praise for London as perhaps the largest and most important financial center in the world. The bank did not opt for a separate dedicated Islamic bank. Instead it decided to set up a strong Islamic banking window with a strong Shariah advisory and audit function and where there is no co-mingling of funds. However, if London does not capitalize on its natural advantage and develop into a global Islamic financial center, then there are others such as France and Germany who are waiting to overtake it.

Sreih is keen for the UK to issue a sovereign sukuk in the wholesale sterling market. The Treasury is in fact considering the market currently. "We are all waiting for this and also because of the liquidity issue and the impact of the credit crunch and the financial crisis. We also saw the visit of the Prime Minister Gordon Brown to the Gulf. I think this will accelerate the timing of the potential issuance of a sukuk by the UK. We have other examples where other sovereigns are also looking at similar sukuk issuances. We are seeing a general movement in this direction. We are in the market to activate and facilitate such projects. The UK chancellor has the responsibility of getting the country out of recession and to jumpstart the economy. But he can't do this without the cooperation of the banks. I think he is on the right track and this will hopefully enhance the labor market and stimulate the inter-bank market," he adds. He, like other bankers, would like the UK to use the sukuk issuance to help Britain spend its way out of the recession as the Brown government would like.

By Mushtak Parker

© Arab News 2008

 

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