Assets of UAE's Islamic banks hit $73bn by end-2010

Central Bank governor says short-term liquidity remains a challenge for Islamic banks in country
Assets of UAE's Islamic banks hit $73bn by end-2010
UAE central bank governor Sultan bin Nasser Al Suwaidi
By Andy Sambidge
Sat 04 Jun 2011 10:29 AM

Total assets and liabilities of Islamic banks in the UAE reached $73.1bn at the end of 2010 but short-term liquidity remained a challenge, according to UAE Central Bank governor Sultan Bin Nasser Al Suwaidi.

He said the number of Islamic banks in the UAE now stood at eight with 260 branches.

Their total assets represented 17 percent of total assets of the banking system in the UAE, said UAE, Al Suwaidi added at a seminar in Dubai, state news agency WAM reported.

"Deposits at Islamic banks are AED198bn ($53.8bn) as at the end of the year 2010, which represents 18.7 percent of total deposits of the banking system," the governor said.

Loans and advances stood at AED169bn, 16.4 percent of total loans and advances of the UAE's banking system.

Al Suwaidi said the growth of assets and liabilities of Islamic banks was 10.9 percent in 2010 which he described as impressive but he added that there were also some challenges that needed addressing.

The first challenge, he said, was the short-term liquidity management at Islamic banks and other Islamic financial institutions.

"This is not a straight forward issue and has been under discussion between Islamic banks and Central Bank of the UAE for several years before we were able to produce any instrument," he said.

During the fourth quarter of 2010, the UAE Central Bank created an Islamic certificate of deposit, intended to absorb excess liquidity in Islamic banks and allow them to invest such liquidity in dirham in the local market instead of turning abroad to invest in foreign currency.

Al Suwaidi said the initiative now has a balance of AED 12bn.

He said another challenge for Islamic finance was the distinction between profit to shareholders and profit to investors.

"We need a standard formula to calculate profit in an equitable and fair way at all Islamic banks," he said.

He also said that Shari'ah boards of Islamic banks needed to be "better coordinated and harmonised" in a bid to set "credible standards for Islamic banks".

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