Bahrain’s new $11 billion Islamic bank to go live in 2009

By: Mike Gallagher

New Islamic bank in Bahrain to launch with $11 billion in paid up capital, with $2 billion from private equity and remainder from IPO. Bank to go into operation in 2009.

Albaraka Banking Group is reported to be one of the major investors behind a $9 billion Islamic bank which is due to launch in Bahrain in 2009, according to Sheikh Saleh Kamel, who was interviewed by Reuters news.

Word of the new bank, which is going to be called Ummar Bank has been doing the rounds of Bahrain’s banking community since early this year, but it was not until Sheikh Kamel, who is the chairman of the General Council of Islamic Banks and Financial Institutions went public, that it became clear who was involved.

Kamel said that Al Baraka and Real Estate Bank from Kuwait were already behind the project, while Dubai Islamic Bank (DIB), the IDB and Kuwait Finance House (KFH) are thought to be looking at joining up. Kamel said the bank will have paid up capital of $11 billion, with $2 billion being raised in private equity. The bank will list on the Bahrain stock exchange.

However, the size of the proposed entity has raised some eyebrows. Kamel did not say where they were going to get the staff from, given that people skilled in Islamic finance were in extremely short supply. Then there is the issue of what kinds of products the bank will offer and where they will invest the money.

Al Inma Bank from Saudi Arabia is due to list shortly in Riyadh and it is expecting to raise at least $2.8 billion, so raising $9 billion, even on the Bahrain stock exchange, could be a challenge.

The biggest question is why the likes of Al Baraka, Real Estate Bank, DIB, KFH and the IDB feel the need to invest in another Islamic bank, when for instance; DIB already is one of the foremost Islamic banks in the region and well beyond.

Another question is why those same banks are not investing the money instead into their own products and services and strengthening their grip on the market. There may plenty of investments for the bank to make infrastructure projects, but where else? One analyst wondered if the decision to launch the bank was a case of ‘build it and they will come.’

Majid Dawood of Shari’ah consultancy Yassar, said “it is a fascinating development to see such institutions coming through because it helps to create a critical mass that should help Islamic finance to better see the future.”