SA Islamic bank in top gear

Financial results released on Tuesday (for the year to end-December 2007) show taxed profits up 84.5% to R18.2m, nearly double financial 2006, and advances growing by 43.1% to R1.31bn.

It's off a small base, but what's significant about Albaraka Bank's strong financial results is that it operates in a market that has recently become the hot cookie for mainstream, non-Islamic banks and asset managers.

"We are the only fully fledged Islamic bank in South Africa, but the market is competitive as traditional banks come in. Absa operates a window offering Shari'ah-compliant products, as does Wesbank," says Albaraka CE Shabir Chohan.

Islam allows trade and the making of a profit, but not through riba, interest charged or earned on money. This is the backbone of Western banking.

Islamic banks, which also lend money and take deposits, instead work on a basis of profit sharing between the client and bank at an agreed profit-sharing ratio.

Asset managers have also aggressively entered this market. Oasis and Fraters have been running Shari'ah funds for some time; more recently, Stanlib entered the market.

Futuregrowth is there too, and has partnered with Albaraka to run the Futuregrowth Albaraka Equity Fund, a Shari'ah-compliant unit trust.

Why this growing interest in the Islamic market? "From an international perspective, Islamic banking is growing for at least two reasons: oil revenues from many of the countries where the banks are based, and increasing knowledge about Islamic banking," Chohan says.

In South Africa, he says knowledge and awareness of Islamic banking is also increasing. Many of Albaraka's top clients are multi-banked, but business is increasingly moving its way (it recently opened a corporate banking division), not only for religious allegiance but as a viable alternative, especially for the Muslim community, to interest-based banking.

Last year's growth was partly powered by an earlier R58m capitalisation injection from 52% parent, Bahrain-based Albaraka Banking Group (ABG). "That offered us greater resources and helped growth." Chohan says a deliberate reduction of liquid assets on the balance sheet also spurred growth, as the bank lent money more aggressively.

"It's not good for Islamic banks to hold too much excess cash. We can't keep it with our own bank, so it's held by the large retail banks, and of course they pay interest on our deposits, which is not allowed. For us this is passive income - we take the amount, pay tax on it, and distribute the rest to welfare and charitable funds."

Though not operating as an interest bank, the national prime interest rate has an inevitable effect on the business. Looking towards Thursday April 10, it seems Chohan would like to see Reserve Bank governor Tito Mboweni keep rates on hold.

"He has a tough decision. Inflation is running away, but at the same time the consumer is over-stretched. I think the full lag effect from earlier increases are still to come through."

- Fin24