INTERVIEW – Sole Islamic Bank in SEE Targets 28% Rise in Assets in 2009

BBI was set up in Bosnia's Muslim-Croat Federation in 2000 as the first bank in Europe to operate according to the principles of Islamic banking, which bans the payment of interest. Saudi Arabia’s Islamic Development Bank owns 45.46% of BBI, followed by the United Arab Emirates-based Dubai Islamic Bank and Abu Dhabi Islamic Bank with 27.27% stakes each.

The Federation and the Serb Republic are the two autonomous parts of Bosnia and Herzegovina set up as a result of 1992-1995 war in the Balkan country. Outside the Federation, BBI has a branch in Bosnia's neutral Brcko district.  

The bank plans to increase the number of its branches in Bosnia to 15 by the end of 2009 from 11 a year earlier.

Here is what Amer Bukvic told SeeNews:

Q.: What impact has the global crisis had on Bosnia and on BBI in particular?

A.: Relevant institutions project that Bosnia's gross domestic product (GDP) will fall between 1.0% and 3.0% this year, which will be the smallest drop compared to the countries in the region. The GDP rose 5.5% in 2008, which illustrates the impact of the global crisis on Bosnia and Herzegovina. Many people lost their jobs, while bank lending slowed down.

Yet, the distinctiveness of Bosna Bank International being the only Islamic bank in the region and connected to markets, where the crisis has had much weaker impact, made it possible for the bank to make a step forward and advance in this period.

Q.: How has the crisis changed BBI’s capital adequacy?

A.: The bank’s capital adequacy ratio is 26%, which is 2.2 times above the minimum allowed. That is why the bank has an open possibility for business expansion and guarantees an additional safety to its clients. The crisis did not impact the bank’s capital adequacy.

Q.: What impact could the crisis have on BBI by the end of the year?

A.: The bank managed to achieve a continuous above-the-average growth in deposits in the period following the eruption of the banking crisis in October 2008 and despite the stagnation of the banking sector in Bosnia it has high liquidity. 

Q.: What is the share of bad loans in the bank's portfolio?

A.: The share of the bad credits did rise compared to a year ago as a result of the crisis. Their share at the end of the first half was 2.6% of BBI's portfolio, which is significantly better than the 4.0% share in Bosnia's banking sector at the end of June, according to central bank data.

Q.: Does BBI operate according to its 2009 plan?

A.: The bank operates according to its 2009 plan after rebalancing its business segments. According to current projections, the bank should exceed its operating plan in terms of total assets and achieve a 28% growth in this segment in 2009.

Q.: How has BBI's deposit portfolio performed so far this year following its 51% rise in 2008?

A.: The rise in deposits this year should be similar to the record one that BBI had in 2008. Current estimates show it should be 48%. [...] As an absolute amount it is bigger as it is calculated on a larger basis, which indicates the bank is in expansion. We expect such development in the coming years as well.

A.: What is your opinion of the Bosnian bank deposit market in 2009?

Q.: The deposit market in Bosnia reflects the effects of the global crisis and the weakening confidence in the banking sector. In the first half of the year, deposits in Bosnia stagnated in all segments of the economy. This improved as of July 31 after the first tranche of the International Monetary Fund money for Bosnia reached the accounts of the entities’ governments.

A.: What is the effect of Bosnia’s $1.57 billion loan agreement with the IMF on the country's banking sector?

Q.: The IMF agreement should mitigate the impact of the crisis on Bosnia and create conditions for increasing its credit rating. In this way the requirements of the World Bank and the European Investment Bank for awarding big credit lines in support of small and medium-sized enterprises have also been satisfied. However, the growth of Bosnia's economy and its banking sector depends above all on the strategy of local institutions and the incentives for domestic production. The government should first and foremost focus on boosting domestic production, on developing tourism and agriculture.

A.: Do you plan to open new branches in Bosnia and expand to other countries?

Q.: We are preparing to open a branch in Tuzla, one of the biggest cities in Bosnia and Herzegovina, and expect a large number of new clients. This will be our thirteenth branch in the country as we plan to open two more by the end of the year, in Gracanica and Gradacac.

[...] Gulf states established BBI with the intention of having a regional arm and strengthening their economic cooperation with the region through investment programmes. Moreover, BBI is aware that in the neighbouring countries, Croatia and Serbia in particular, where a considerable number of Muslims live, there is interest in an Islamic bank and we still analyse the needs of these markets and whether a probable presence of BBI would be justified.

A.: What does non-interest banking mean?

Q.: The conventional bank is an institution, which profits by lending money, while the Islamic bank collaborates with the client, enters a project with them. It earns on the effort it puts in, on the service it provides to the client, on the joint project they carry out and on the risk it takes itself.

A.: How do you see the future of Islamic banking in Southeastern Europe?

Q.: Bosnia has all the qualities to become the financial hub of Southeastern Europe. The closest way to attaining such position is through establishing a centre of Southeastern Europe’s Islamic banking in Bosnia and Herzegovina, which would automatically mean the opening of a bridge to the most liquid financial markets like Dubai, Bahrain and Jeddah.

Countries much stronger financially than ours, such as Germany, France and England, are fighting for these financial centres, so I see no reason why we don’t pay more attention to this idea, especially after we already enjoy the benevolence of the Islamic financial centres. But to accomplish this, we need a full commitment and support of the state, similar to banks in the UK.