By John Irish
UPDATE 1: Dubai Bank sets up $5bn financing programme to add growth, plans to be major global lender.
Dubai Bank plans to become a major global Islamic lender over the next five years through acquisitions and has set up a $5 billion financing programme to aid expansion, its chief financial officer said on Sunday.
The bank, a unit of Dubai Banking Group, has "pretty much the same aspirations" as group affiliate Noor Islamic Bank, which is aiming to be the world's largest Islamic bank within five years, Ahmed El Shall told Reuters in an interview.
"We have a specific strategy to be by 2011 a major force to contend with in the Islamic bank arena," he said.
"(Within five years) I can see Dubai Bank almost on a global basis and represented in Europe, very much in Asia and Africa and at regional level in other GCC countries."
Dubai Banking Group, a unit of Dubai Holding which is owned by the ruler of Dubai, has a 40 percent stake in Bank Islam, Malaysia's oldest and largest Islamic bank, and a 40 percent stake in ACR Re-Takaful Holdings Ltd, the world's largest reinsurance company.
The group is looking to continue its expansion into Asia and Africa and would use the Dubai Bank brand to enter the banking sector in those markets, Shall said.
"It will be a combination of organic and acquisition (based) growth ... There are negotiations for joint ventures with certain countries whereby the target is to make sure we have control of an existing business," he added, declining to be more specific.
Unlike conventional banking, where lenders such as Citigroup Inc and HSBC Holdings Plc dominate, there are no global Islamic banks.
HSBC, for instance, offers sharia-compliant services through its Amanah unit, while Gulf lenders such as Kuwait Finance House and Al-Rajhi Bank have expanded into countries such as Malaysia, where Muslims form a majority.
Dubai Bank, with assets of about 16 billion dirhams, has also set up a $5 billion medium-term note programme to help finance the proposed expansion, although the bank is waiting for the "opportune" moment before tapping the debt markets.
"All options are on the table ... we're looking at the sukuk (Islamic bonds) market and syndicated loans," Shall said, declining to identify the banks mandated to arrange the programme.
Set up in 2002 before converting to an Islamic bank at the start of last year, Shall said the lender expected profit this year to grow at the same rate as 2007, when net income doubled to 210.8 million dirhams.
Demand for investments and financial services complying with Islamic law -- which includes a ban on the receipt of interest -- is growing among the world's 1.3 billion Muslims as they seek more ethical ways to invest their money.
Islamic lenders controlled assets worth about $750 billion at the end of 2006, a figure which may rise above $1 trillion by 2010 as the industry expands, according to US management consultants McKinsey & Co.
Saudi Arabia's Al Rajhi Bank, the world's largest Islamic lender, had assets worth $33 billion at the end of September.
Dubai's government, ruler Sheikh Mohammed bin Rashid al-Maktoum and 15 other individuals put 3.16 billion dirhams ($860.6 million) into Noor Islamic Bank in 2007 and the bank has set a five-year target to become the largest Islamic lender.
Shall, whose bank has a capital of 2.2 billion dirhams including reserves, said there was room for two large Islamic institutions within the same company, but acknowledged that in the long term it may make sense to merge the two.
"Looking at the future, it would not be out of the question if you see that one of the entities acquires the other one," Shall said, adding that there were no such plans at the moment.
The ambitions of family-ruled Dubai have soared during the last few years, benefiting from windfall oil revenue. Dubai plans to build two of the world's 10 largest financial institutions by 2015, Dubai official Omar bin Sulaiman told Reuters last year. (Reuters)