The launch of Amana Bank as Sri Lanka’s first fully-fledged Islamic bank in August last year belies the bank’s experience in Islamic finance, which can be traced back to 1997. Starting out as Amana Investments, Amana Bank was later set up in 2009 following legislative changes to Sri Lanka’s Banking Act No. 30 of 1988 to allow Islamic banking.
Now five months into its rebirth, the bank is focused on expanding further and sees its small and medium sized enterprise (SME) business as a key area of growth. Additionally, with shareholders including Bank Islam Malaysia (20%), Bangladesh’s AB Bank Limited (15%) and the IDB (10%), Amana Bank also appears well-placed to take advantage of the ample growth available in Sri Lanka’s fledgling Islamic finance industry.
“My outlook is positive. The industry is showing clear signs of vibrancy after Amana Bank’s entry into the banking sector as the first fully Shariah compliant commercial bank in the country. The popularity of Islamic finance is on the rise as seen from the growth in our own balance sheet; the number of conventional banks and finance companies that are stepping forward to open Islamic windows; the emergence of new fund managers [and] new equity funds; the growing interest in Islamic finance education and training; and the interest that is beginning to gather momentum in the larger non-Islamic segments of Sri Lankan society.
“I can see an Islamic finance eco-system in the making,” said Faizal Salieh, the managing director and CEO of Amana Bank, in a response to Islamic Finance news.
Leg-up on growth
Thanks to a leg-up from the acquisition of Amana Investments’ previous business, Amana Bank can now account for LKR5.3 billion (US$46.5 million)-worth of financing assets and LKR11.3 billion (US$99.2 million)-worth of deposits.
“The financing asset mix in terms of business portfolios is 22% consumer financing, 41% corporate financing and 37% SME financing. In addition to our short-term financing lines, we also do Ijarah lease financing of vehicles, equipment and machinery and provide housing finance for retail customers,” said Faizal.
He also noted that the SME segment is seen as the main area that will drive Amana Bank’s growth. “The margins are better in this segment and in the post-civil war period in our country this segment has tremendous potential for the uptake. Infrastructure development is another. There is also good potential for consumer financing.
“The challenge, however, lies in the bank’s ability to introduce the range of Islamic banking products that would meet both market requirements and Shariah approval,” he said.
Looking ahead
Faizal also commented that the bank is focused on expanding its SME capabilities; in particular by strengthening its human resource skills in SME business development and risk management and expanding its distribution channels in high density SME territories.
“We are also reaching out to identified corporate in selected growth sectors of the economy, albeit the margins in the corporate business segment [are] pretty thin. Currently we are working on a number of financing transactions including project finance for customers engaged in the fields of renewable energy and export manufacturing start-up initiatives,” he said.
The bank has also identified the expansion of its local distribution network as a key goal of its five-year strategic plan; where it aims to have up to 70 branches by the fifth year of its operations.
“The strategic plan also includes expanding into new emerging markets overseas where there is a viable demand for Islamic banking,” said Faizal, who noted however that the bank is inclined to consolidate its local operations before stepping outside Sri Lanka.
“Having said that, we shall certainly explore any new and good global opportunities that arise where we can offer our expertise and promote the unique value proposition of the Islamic banking model,” he said, adding that the bank hopes to draw value from its shareholders in order to expand abroad.
The bank is also mulling its needs for Tier II capital and has initiated discussions with “some parties” on the matter, said Faizal.
Opportunities abound
Among the factors encouraging the bank’s bright outlook is the current market for Islamic finance in Sri Lanka, which has plenty of room for growth, although some hurdles remain.
“The transformation path has been particularly slow in the regulatory, tax and legislative environments; which is understandable in a Muslim-minority country. But in recent times we are beginning to see a positive alignment of minds and more traction at these levels,” noted Faizal.
On its part, Amana Bank is also playing a role in reaching the urban and rural areas of Sri Lanka; and investing in technology and new products to better serve the banking population. Faizal said that the bank is also in talks with the regulatory and tax authorities to bring appropriate changes to the regulatory and legislative frameworks to facilitate the growth and development of the industry; and to put the industry on a level playing field with its conventional counterpart.
Going forward, Faizal said that: “Some of the opportunities in Sri Lanka we could capitalize on include the emerging demand for Islamic retail banking in the north and eastern provinces in the post-war era; inward remittance business from Sri Lankan Islamic expatriates working overseas where there is a demand for a Shariah compliant banking conduit; and infrastructure development financing.”
Having hit the ground running since its official launch last year, the bank appears set to remain a firm fixture of Sri Lanka’s Islamic finance market. — EB