International Bank of Azerbaijan (IBA), whose Islamic banking business has primarily had to concentrate on growth outside of its home country, plans to apply for a license to establish a Shariah compliant finance subsidiary in Qatar in September this year.
In an interview with Islamic Finance news Behnam Gurbanzada, the head of the Islamic banking unit at IBA, said that the bank will submit an application to Qatari authorities for a Category 4 license, which allows institutions to arrange deals in investments, provide credit facilities and custody services, advise on investments and operate collective investment schemes.
“IBA is planning to establish an Islamic banking subsidiary with a local partner. The paid-up capital requirement is US$250,000. However, we are planning to increase the operational portfolio after start-up.
“We are planning to finish preparations by the end of 2013 and start operations in the first quarter of 2012,” said Behnam, who also noted that the bank has already received preliminary permission for its planned venture from local authorities.
He added that the documentation for the bank’s application is expected for completion after Ramadan. He could not disclose the identity of IBA’s local partner, noting however that the firm is “well-known in the GCC and a respected Qatari company”.
Strengthening domestic presence
The bank’s Qatari ambitions appear to be driven by a need to diversify away from Azerbaijan, at least for now, as the country still has no separate legislation for Islamic finance, creating a hurdle in the further development of the industry there.
“Regulatory bodies support IBA’s intentions to present Islamic banking in Azerbaijan, but they do not have enough knowledge about Islamic banking. Hence, local regulators should be provided with more detailed and educational information regarding Islamic banking as a banking model for earning money,” said Behnam.
Nonetheless, he explained that Islamic banking can be provided in the country via the conventional banking structure, noting that while this is not the ideal scenario, until amendments are made to the legal framework to accommodate full-fledged Islamic banks, this is the best option to offer Islamic products and services.
Among growth plans of IBA’s Islamic banking unit, which currently has assets of around US$60 million, is to increase its asset base to US$1 billion, said Behnam.
The unit, which is targeted to be developed into a window, plans to offer corporate and wholesale banking products within the first phase of its development; and retail and wealth management products in its second phase.
Behnam also noted that the bank’s Islamic banking business in Azerbaijan will be used as a test for the implementation of Islamic banking in CIS (Commonwealth of Independent States) countries.
Tapping the CIS region
Behnam also sees Azerbaijan as a country well poised to become a hub for Islamic banking in the CIS region, given that 93.4% of the country’s nine million-strong population is estimated to be Muslim. In addition, the country borders other Muslim-populated countries, such as Turkey, Iran, Georgia and Russia.
“Furthermore, the banking sector in Azerbaijan is developing and there are constantly growing requirements for new banking services and products. Islamic banking is in popular demand,” said Behnam.
Given the strong projected potential for Islamic banking in those CIS countries, IBA’s efforts to strengthen its Shariah compliant business will remain partly focused on those markets. In addition to its Qatari venture, IBA has set up a subsidiary in Russia and has a presence in the UAE.
“We will have great opportunities to create an Islamic banking platform within the CIS countries for collaboration with potential investors and partners from the MENA region,” said Behnam.
He added that: “We are planning the establishment of a common chain of IBA subsidiaries and representative offices. If we are successful then we can set up an Islamic investment and development bank of CIS countries.”
He also said that IBA is working with Russia’s VTB Bank on the unified Islamic bank for CIS countries, with further developments expected to be announced following the International Banking Conference of the CIS to be held in November this year. — EB