Islamic Bank shifts strategy

Targets customers of conventional banks

SARITDET MARUKATAT

Kuala Lumpur _ The Islamic Bank of Thailand is aiming high with plans to lure clients away from conventional banks and list by the end of the decade.

The ambitious strategy follows the complete integration with Krung Thai Bank's Islamic banking service division in the fourth quarter of last year.

Islamic Bank CEO Suwan Damnernthong said it was embarking on a plan to attract more clients who now use conventional banks. With the decline in interest rates offered by commercial banks, he is confident that the market is ripe for the bank to make the move.

''When interest rates are on the downward trend, it's easier [for the bank to go after new clients]'' as the Islamic bank also offered the same products as commercial rivals, said Mr Suwan, who also is the bank's senior executive vice-president.

The executive was in the Malaysian capital last week to participate in the Global Islamic Finance Forum hosted by Bank Negara, Malaysia's central bank.

Unlike ordinary banks, an Islamic bank cannot offer savers returns in the form of interest, which is against Islamic law. Instead, it gives customers other forms of benefits such as dividends or fixed profits in return.

''Islam does not believe in the interest-rate system,'' said Malik Al-Awan, dean of the faculty of the Kuala Lumpur-based International Centre for Education in Islamic Finance.

About half of the Islamic Bank of Thailand's clients now are Muslims. But Mr Suwan said there was plenty of room to entice non-Muslim citizens in the country to use its services.

The bank's key customers are exporters of halal food to Arab markets who need to do business with a bank with the understanding of Islamic principles to boost confidence for their partners in the Middle East, according to Mr Suwan.

The bank has 29 branches, 12 of them in the southern border provinces of Narathiwat, Pattani, Satun, Songkhla and Yala. A Phuket office will be opened next month to expand its presence in the country.

As part of the expansion plan, the executive said the bank was waiting for the approval of the Finance Ministry, its major shareholder, after requesting a fresh cash injection of 3.3 billion baht.

It planned to double registered capital to 2.4 billion baht this year, he added.

''In the past, we could not promote our services because we were not ready,'' the bank executive said.

Should the plan work out, he said listing the bank on the Stock Exchange of Thailand would be possible around 2010. Given the bank's niche, regulators should ease restrictions on the listing, he noted.

The bank has drawn experience in Islamic banking mainly from its counterparts in Bahrain and Malaysia, whose government wants to turn the country into the region's Islamic financial centre.
Muslim countries have enjoyed trade surplus of between US$92 billion and $125 billion a year, mostly from petrodollars from Middle Eastern oil-rich countries, according to a Goldman Sachs report.

Most of the money goes to fund managers and banks based in Europe, mainly the United Kingdom. Only between $6 billion and $12 billion go to Malaysia, according to the report.
''Islamic finance is one of the world's fastest-growing sectors,'' Andrew Sheng, an academic of University of Malaya and chief adviser to China's banking regulator, told the forum.

Still, Ahmad Ibrahim Kulliyyah, a law professor at the International Islamic University in Malaysia, said clients of Islamic banks needed to understand that they were not risk-free.''One fear is that people go to Islamic banks without the knowledge that they have risks like conventional banks,'' she told the forum.

For Thailand, Mr Suwan said obstacles for the bank were its relatively limited number of branches and public perception. ''Some still misunderstand that the bank is only for people in the Deep South.''

Bangkok Post
Tuesday April 03, 2007