In spite of its standing as a global financial center, the UK has proven to be a tough market for Islamic banks to crack. With only a handful of Shariah compliant banks in the market, it is easy to separate the haves from the have-nots and the Bank of London and The Middle East (BLME) has stood out as a success story among them.
Having recently been given approval to set up an office in Bahrain, the bank now seems prepared for its next stage of growth. While it has not all been smooth sailing for BLME, its experience is worth examining as testament that there is hope yet for the growth of Islamic banking in the UK.
Clear business plans
“We have a very clear business plan that we have followed and we have recruited experienced, industry-leading professionals across all areas of the bank. BLME has a strong capital base, supportive shareholders and a diverse client base,” said Humphrey Percy, CEO of the bank, in a response to Islamic Finance news.
Those plans have helped the bank remain on firm footing, even as some of its conventional and Islamic counterparts labor through the after-effects of the recent financial crisis. Its strategy includes a diversified business in markets and corporate banking, private banking and asset management.
“In 2010 BLME focused on consolidating and expanding our product offering and developing client relationships. It is clear that many investors lost faith in banks over the course of the credit crisis and came to BLME looking for a differentiated service.
“Clients came to us looking for a relationship-focused and solutions-led bank and we were able to fulfill this requirement,” said Percy.
As a result of its efforts, the bank was able to turn around a loss of GBP13.24 million (US$21.73 million) recorded in 2009 to a profit of GBP3.52 million (US$5.78 million) last year. On top of an increase in operating income, its recovery was also boosted by a net impairment credit of GBP1.05 million (US$1.72 million) compared to an impairment charge of GBP21.01 million (US$34.49 million) booked in 2009. As at the end of 2010, its balance of impaired financing assets had more than halved to GBP8.2 million (US$13.46 million) from a year earlier.
The bank also anticipates that the downward trend of its impairments seen from 2009 will continue as the global economy improves, said Percy.
Return to growth
For this year, the bank sees its property financing, high net worth individuals and corporate, lease financing and asset management businesses as its main drivers of growth. It will also continue to expand organically and by innovating new products.
“We have already seen steady growth in our corporate banking division in 2011. Interestingly, we are seeing return business from those clients who approached us during the credit crisis. We have also focused on developing our fund offering: we have launched two funds this year and new share classes for our top-performing US dollar income fund,” said Percy.
Following the recent announcement that the bank is involved in a US$130 million Murabahah transaction for Boubyan Petrochemicals Company, he said the bank has a strong pipeline, especially in its leasing division which is seeing opportunities in both the UK and the US. “We expect to increase our corporate financing transactions over 2011,” he added.
Its Islamic capital markets desk also has a number of international deals in the works, said Percy, although he did not provide details. Of its property financing business, this is mainly UK-based, with its newly-launched Light Industrial Building Fund to provide geographical diversification across its home market.
Towards a new phase
As the bank has solidified its position in its home market, it is now ready to grow in new areas, especially in the Middle East as it seeks to fulfill its target of acting as a bridge between the region and the UK. In line with this, it applied to open a representative office in the GCC and was given approval to do so in Bahrain.
According to Percy, an office in the GCC will provide the bank with a base for relationship building and operations in the Gulf, while forming an integral part of its strategy to expand across the region.
“This expansion will help to provide our existing and potential client base with valuable advice and investment opportunities within the GCC and the UK,” he said.
The bank is also holding on to its plans to launch an IPO, which will be carried out “when market conditions are right,” added Percy.
The bank also expects to achieve further expansion through continued diversification as it grows and develops all of its business offerings. “We feel that Islamic asset management is a growth industry which will fuel the rest of the sector. Islamic asset management is being supported by the growing Sukuk market,” he said.