Islamic Banks Safe says CBB

MANAMA: Islamic banks have been largely shielded from the US mortgage crisis, which may even open doors for expansion beyond traditional strongholds in Arab and Asian markets.

Central Bank of Bahrain (CBB) Governor Rasheed Al Maraj told the Reuters Islamic Finance summit yesterday that Islamic banks should have shunned collateralised debt obligations linked to subprime, or high risk, mortgages because such complex instruments do not comply with Muslim law.

Scholars vet every stage of a transaction to ensure compliance with sharia, making it unlikely that risks were lurking in the balance sheets of unsuspecting lenders, he said. "In Islamic banking, there is no black box that needs a genius to unwind it," Mr Al Maraj said.

Meanwhile, the CBB plans to renew $350 million worth of five-year Islamic bonds before July and does not expect a global credit crisis will hit pricing, Mr Al Maraj said.

The CBB will combine two Islamic bonds, or sukuk, expiring in April and May into a single bond priced at between 30 to 35 basis points above the London Interbank Offered Rate (Libor), Mr Al Maraj said.