Tirad Al Mahmoud, CEO, Abu Dhabi Islamic Bank: Interview

Interview: Tirad Al Mahmoud

What steps are Islamic banks taking to confront the new reality of lower oil prices?

TIRAD AL MAHMOUD: History is a sequence of events that tend to be repeated from time to time. Those who are lucky enough to recognise that an event is about to repeat itself are a lot more prepared to deal with the same challenge when it crops up again. The decline in oil prices and the challenging global economic environment are good examples of this. They may not be happening again for the same reasons, but the impact tends to be very similar. That said, this is an economic cycle that will eventually end, and we have to see light at the end of the tunnel. This will pass, and I personally believe that prospects for 2017 are encouraging, supported by a recovery in oil price.

In the meantime, banks will need to remain focused on their absolute priorities in 2017; keep focused on their core business, manage their liquidity, look after their customers and look at their internal infrastructure, while continuing to upgrade their delivery systems.

When we talk about Islamic banks and conventional banks in that context, they serve the same purpose, and are subject to the same influences. We are economic enablers, and we are very similar in that respect. As an Emirati bank, we will continue to play an important economic role and support various stimulating economic activities. This will help the economy recover and continue growing. Being responsive to our customers’ needs and continuing to expand our products and services and investing in our capabilities will strongly benefit the economy. However, experience from the last financial crisis has shown that Islamic banks have the advantage of investing in the real economy and the added safeguard of avoiding speculation.

How is the UAE’s Sharia Authority expected to alter the landscape for existing players?

AL MAHMOUD: The national Sharia Authority that the Central Bank of the UAE has committed to establish will set the rules and standards that we apply across our operations, and will ensure consistency for the industry as a whole in the UAE.

Other countries have put similar structures in place for the same reasons, and to good effect. This does not change legislation, or regulation. It helps to ensure that all sharia-compliant banks in the UAE operate to the same rules and standards, and that new products and services are approved on consistent guidelines and principles, and that differences of opinion are judged by an overarching body rather than left to potential disputes among different groups of scholars and advisers.

What sort of liquidity management tools are available to Islamic banks?

AL MAHMOUD: This is perhaps the greatest challenge facing Islamic banks, and one which we have been working on for a long time with central banks from around the world. Islamic banking liquidity management instruments, such as the tools being developed by the International Islamic Liquidity Management Centre in Malaysia, generally consist of low-profitability assets, such as cash and central bank deposits, but we need more sovereign sukuk (Islamic bonds). Sukuk are primarily offered as over-the-counter instruments and only a limited amount of them are listed on developed and liquid exchanges. It is widely expected that the implementation of Basel III and its new liquidity coverage ratio will increase offerings of liquidity management instruments. This situation has, so far, placed us at a disadvantage when compared with conventional banks, which have a wider range of interest-earning liquidity management options available.

As the industry matures and develops, we are seeing increased efforts to develop sharia-compliant liquidity tools. These tools will act as a critical element in further accelerating the growth of our industry, and the introduction of these will be important for Islamic banks wanting to boost their competitive positions.