Shoaib has been with Saudi British Bank (SABB), in which HSBC has a 40 percent equity stake, for over two decades. He confirms, “The HSBC Group is fully committed to HSBC Amanah.” “The prospects are great, otherwise we would not have been in this business for the last decade, and hopefully for future generations as well,” he said.
HSBC Amanah’s Islamic financial products are marketed to both conventional and Muslim customers, because Islamic financial products, according to Shoaib, are now competitive with conventional ones. “This gives our customers a choice between Islamic and conventional products. The uptake of our Islamic products by non-Muslims has been phenomenal across the globe,” he explained.
Saudi Arabia is a prime market focus for HSBC Amanah, which is expanding its business in the Middle East and South East Asia. Shoaib confirmed that SABB to date has converted 33 of its 74 branches into dedicated Islamic banking branches, and a few more will be converted during 2008.
“The HSBC Group has vast experience in various fields, and we at HSBC Amanah want to leverage this experience and to be an integral part of this business but based on our own neutral ground. The strategy of HSBC Amanah is to follow the law of the land of the regulator wherever it operates.
“In certain parts of the world, HSBC Amanah has window operations because some regulators allow that and others don’t. In Saudi Arabia, SABB has always been a window operation. But now we are moving toward a subsidiary. All the branches are being converted into Islamic operations. That resonates with our management and Shariah scholars in the Kingdom,” he explained.
Whether SABB becomes a full-fledged Islamic bank or not, he concedes, “will be dictated by the customers, management and the regulator. The Saudi Arabian Monetary Agency (SAMA), does not term institutions, Islamic banks, or products as Islamic products. They are called Shariah-compliant products. The aim is to create a level playing field between conventional and Shariah-compliant products.”
HSBC has Islamic windows in Oman and Dubai. In Qatar, the regulator only allows the Islamic subsidiary route, so in Doha, HSBC Amanah has a branch. In Kuwait, HSBC Amanah has a small representative office, but in Bahrain it will soon be launching a major operation because “we believe Bahrain will continue to be a major Islamic finance business center in the Middle East.”
In Malaysia, HSBC has been offering Islamic financial products well before the establishment of HSBC Amanah. In November 2007, HSBC was granted a license by Bank Negara Malaysia to establish an Islamic banking subsidiary – the first global international bank to be awarded such a license in Malaysia. HSBC Amanah also set up its first stand-alone branch in Indonesia in 2007.
In the UK, HSBC may expand its Islamic banking business, especially its mortgage business. HSBC is also interested in issuing sovereign and corporate Sukuk out of the UK, but is also keeping an eye on developments in the European Union although this is not an immediate priority. In the US, HSBC Amanah has a small platform primarily on the asset management side because of its real estate investments there. HSBC Amanah has the largest Islamic property fund with assets under management totaling $ 1.8 billion.
While welcoming the dialogue regarding a move away from structuring Shariah-compliant products to structuring Shariah-based ones, he concedes that structuring the latter is time consuming and very complex. “For the global banks, Shariah compliant products are more appealing. I do not see any harm in benefiting from the 400 years of financial engineering expertise of the international banks, as opposed to only 40 years for the Islamic banks. Islamic finance has a long way to catch up, but the gap is narrowing. Shariah-based products will become an issue in the future.” Today HSBC Amanah offers over 200 Islamic financial products. Some of these products are universally marketed, and as the business grows, more products will be developed that can be cross-sold in various geographies, provided they are not in conflict with any respective regulatory regime. HSBC is also developing its Takaful and Retakaful business through its Saudi entity, SABB Takaful, and HSBC Takaful in Malaysia.
Shoaib stressed that the Middle East, especially the GCC countries, continues to be of prime focus area for HSBC Amanah. Other areas of interest are South East Asia, India, China, Pakistan and Egypt.
Although Islamic banking has been around in the last three decades, to Shoaib it has only really picked up in the last decade or so. “People’s expectations are always high. Both the regulators and practitioners have to try to match these expectations. A lot has been achieved over the last three decades, but a lot has still to be done especially in the application of Islamic banking in its true spirit.
Central banks have to understand what opportunities Islamic banking has to offer. I don’t believe Islamic financial institutions require or want preferential treatment. All they ask for is equal treatment with the conventional sector so that it is a level playing field,” he advised.
One area that has seen spectacular growth in the last few years is the Sukuk market. But the development of a secondary market and a market maker like HSBC are still lacking. “We are trying to push this market,” stressed Shoaib. “Last November, for instance, we launched with the Dubai International Financial Exchange (DIFX) a Sukuk Index. This is a start to promote transparency and benchmark etc in the Sukuk market. Joining forces with DIFX is a step in that direction.”
He dismisses suggestions that Islamic banks are unduly exposed to one or two asset classes such as real estate and Sukuk. “We have to be careful not to generalize,” he advised. “Most regulators impose ceilings for a certain asset classes. Each market has its own regulatory requirements and is ensuring that Islamic banks are financially sound, with a strong capital structure, corporate governance and internal controls.”
