Making an impact: Ahmed Saad, Deputy CEO, Sharjah Islamic Bank, on potential growth strategies and the impact of new regulations

How would you assess the potential for growth in corporate and Islamic banking in the UAE and the greater MENA region?

SAAD: Islamic banks operate in a very competitive environment, where many conventional banks are also looking to increase their Islamic business. Though this may not be an immediate concern, competition for the best services will soon bring growth to the region’s economy. Islamic banks have grown at a double-digit pace over the last decade and the growth potential for them remains immense. However, consolidation in the wider banking sector may be expected in the future.

This consolidation is beneficial as it brings synergies to the banks and shores up their capital. Globally, we have seen that banks are vulnerable to financial market volatility. Hence, in terms of size and capital, scaled-up banks are better for the wider sector. Overall, it is very early to say if there is going to be any merger and acquisition activity, unless it is driven from the top down in order to enhance the value proposition of more than one bank.

In what ways can banks in Sharjah increase their exposure to small and medium-sized enterprises (SMEs) in their loan books?

SAAD: Investing in SMEs is a rewarding and risky business. There have been a few “skip cases” in the country over the last 15 months; however, the impact on banks has not been significant. SMEs are the backbone of any economy, especially for a country like the UAE, where a lot of human and financial capital is attracted by the ease of doing business and the infrastructure already in place.

Banks have to keep SME business as an important area in order to further support the economy, as well as their own growth agenda. However, the inherent lack of assets with SMEs is a continuing challenge. As the bankruptcy law comes into effect, we can see better approaches by Islamic banks in providing facilities to SMEs.

How do you expect the new bankruptcy law will affect the banking sector?

SAAD: The new bankruptcy law will be enacted in the first quarter of 2017 and broadly applies to four categories: corporate entities, service companies, individuals who conduct business for profit (i.e., lawyers, doctors, engineers and so on), and corporations and semi-government corporations.

Overall, the new law provides traders with three key options for a financial crisis: restructuring, preventive composition and bankruptcy. Restructuring ensures that debts and businesses are put through a financial restructuring and bankruptcy committee in order to avoid bankruptcy through soft-touch conciliation outside of the courts. Preventive composition involves action taken through the courts to protect the assets of the creditors against bankruptcy. Lastly, the bankruptcy option ensures that full bankruptcy proceedings will take place in the courts, which could also involve restructuring.

What impact do you anticipate increased sovereign debt issuances within the region will have on the sukuk (Islamic bond) market?

SAAD: The ability of a country to pay back its sovereign debt is of great importance, as it is a tool that shows the strength or weakness of an economy. A country with a strong economy, manageable debt burden, stable currency, strong tax collection and positive demographics will likely have the ability to pay back its debt. If sovereign debt issuances are increasing and payments are not being made, a country’s credit rating and ability to borrow money will be affected. Thus, overall, it can be viewed as a positive step when sovereigns raise funds through debt issuances in the form of conventional bonds and sukuk.