Bahrain's central bank has urged five Islamic banks to merge early next year as it seeks to strengthen the banks' capital bases, a senior official said.
Naser Mohammed Al-Belooshi, Executive Director of management services at the Bahrain Monetary Agency, the Gulf Arab state's central bank -said capital limitations would continue to seriously compromise the ability of Islamic banks to finance major international projects.
Consolidation is the trend
"Islamic banks will have to consolidate or otherwise or substantially increase their capital structures to enhance their ability to provide project finance on the scale required," he told a banking seminar in Bahrain. Belooshi said the ability of Islamic banks and financial houses to compete with conventional banks was expected to diminish after recent global mergers.
Islamic banks do not pay or charge interest as it is considered by many Muslims as usury, which is banned under Islamic Sharia. They make money instead by using a system of profit sharing from returns on approved investments. Under the plan, Al Salam Bank would merge with Bahrain Islamic Bank, while Capivest, Elaf Bank and Capital Management House would merge with each other.
Bahrain Islamic Bank and Al Salam announced in August that they were in merger talks to form Bahrain's largest Islamic lender with assets of $4.5bn.There are around 200 Islamic banks and financial houses globally, including 18 in Bahrain, that serve some 1.2 billion Muslims.