Interview with Mr. Adnan Ahmed Yousif – President & Chief Executive of Al Baraka Banking Group

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How is the banking business taking shape with clouds of uncertainty still hovering around in Europe and some other major economies?


Clouds of uncertainty continue to overhang the banking and financial services sector, the world over.

The European economy continues to be fragile. The banking sector continues to face a number of challenges under the influence of these macro issues.  It is imperative that bankers, the world over, will have to find ways to grow profits and contain costs in a weak economy. We need to manage the fallout from the European sovereign debt crisis.

There are now a number of emerging dynamics that the banking sector needs to adapt to – notable among these is the emerging new era of regulatory evolution.

Social activism is another phenomenon that all sectors of the economy need to understand and adapt their business practices suitably.

Even while some of these challenges, such as the European sovereign debt crisis and U.S. political gridlock, may seem to move closer to resolution in the coming months; it is feared that the new wave of social activism, as seen demonstrably by efforts such as Occupy Wall Street and Bank Transfer Day, the results of the Presidential and General elections in France and Greece etc, may signal changes at the established salvation programs front.

But as we move ahead, I do believe that 2018 is promising better performance and results for the banks.

What have been the growth patterns of the Islamic finance and banking and what are the projections for Islamic banking?

ADNAN AHMED YOUSIF: Islamic banking has always been innovative in terms of products and in adapting its business models to changes in the economy. This is something related to its philosophical nature and not only to flexibility in business dynamics. We have seen this throughout the history of Islamic banking. If you go back deep in history to 1400 years ago, you would see that the model has started in a way similar to today’s investment banking (sukuk , al zubbair  ibn Al Awam). The model has changed drastically to now become a full fledged industry covering almost every financial need in the economy. We can now see the model having modern investment banking, commercial banking, retail, takaful and insurance, finance companies, trade, investment funds, development banks, housing banks etc., If you go into details, looking at the business models of each and every banking type from the above categories, you can see that how the industry was always able to come up with  added value that has a direct impact on its size and growth. Given the current environment, whereby, uncertainty is the master of the hour. I do not see this changing despite the dramatic developments throughout the world including the Arab Spring and a like socio-political changes in many of the Arab countries, Euro zone crises and even in the other side of the Atlantic were we see a very active movement i.e. Occupy Wall Street in the heart of today’s financial system leading country. There is no magic behind this growth pattern, it is simply because the model has solid base from which the practice is derived. The number of the Institutions that adher to the Islamic system have had increased by 5 times than it was just 30 years ago . Different sources are talking now about the size of more than US$ 1 trillions in terms of assets under management – representing almost 1/3 of the Arab world banking system and 1% of the global banking system.

Now would be the opportune time to consider establishing Islamic sovereign wealth funds ISWF to champion the growing internationalization of the industry. The ISWF will further facilitate businesses across OIC markets seeking to transform to Shari’a compliant system and also help deepen the Islamic capital market, in our view.  The growth of the Industry will further get enhanced by the forthcoming establishment of the  MEGA bank, which was announced in Khartoum last month.

It is said that there is a bumpy road ahead for Islamic banking; despite the growth there are many challenges, what are your views?

ADNAN AHMED YOUSIF : The crisis continues to hit hard globally, with almost all sectors in all markets of the world economy, having been impacted directly in one way or another. The economic turbulence has affected everyone. The financial services sector in general, including Islamic Finance is now facing regulatory and practice-related reforms. The focus is increasingly shifted to good governance and this new wave of regulatory reforms, aimed at upholding best practices, is directed in this direction. Hence, now there is greater pressure on financial institutions offering Islamic financial services to galvanize their risk exposures and governance capabilities. Islamic financial services sector has to compulsorily develop and adopt. As the Islamic financial sector continues to evolve, challenges on operational and management fronts continue to throng the institutions. Questions and issues relating to best practices in risk management and effective risk functions have surfaced.

Moreover, the complexity of Shari’a compliant debt and equity instruments has evolved integrated risk management strategies, in order to protect their businesses and stakeholders. There is more awareness than ever now apart from scrutiny by national regulators and industry standard-setters to safeguard the interest of investors and customers.

Today, many Islamic and traditional financial institutions are reviewing their risk management functions and models. Senior Management, Shari ’a Supervisory Board members, and Boards of Directors, are more actively engaged in the risk management decision-making process than ever before.

We are increasingly looking forward to the regulatory harmonization of standards and Shari ’a fatwas. This is indeed inevitable and synergy in market and practice is what all stakeholders will be looking for.

Let us not forget that globalisation and changes in technology, product offerings, process, and the nature of business transactions create new types of challenges and risk as well. Risk drivers in Islamic Finance starts with conventional known types of risks, as well as the unique Shari ’a compliance risk – collectively they shape the operations of the Islamic financial services sector.  Shari ‘a compliance is a fundamental prerequisite factor for developing any risk management strategy for an Islamic financial institution, whether in sourcing of funds or use of funds. The Management of these institutions will have to ensure compliance to Shari ’a principles in every aspect of the operations and management of their assets.

Need of the hour today is to develop risk management strategies that address the entire spectrum of risks, including industry specific such as Shari’a compliance, competition, community development, strategic, reporting, and operational. Investment of organisational energies in this area is a must.

Recent events, whether affecting conventional or Islamic Finance, have revealed that there are still deficiencies in the management of risk.

ADNAN AHMED YOUSIF: While we discuss all this, it is important for us to remember that the Islamic financial services industry, though growing  exponentially,  still has a long way to go – and to be able to achieve scale and its set responsibility towards  society in playing a major role to help stakeholders succeed financially and thereby ensure long term economic growth. The main challenges which the industry needs collectively to work on can be summarized in the following:

  • Most of the Islamic Banks are under-capitalized, with less than $13bn assets. Therefore, capital needs to be increased to competitive levels to maintain operational safety, and assets need to be increased to meet profitability targets. Industry should continue its quest to boost international competitiveness and to build a sustainably profitable business model based upon these tenets.
  • Regional capital capacities need to be strengthened e.g. the MENA region which is currently holding more than $400 billion, accounts for almost 15% of the total banking assets in the region. More capital resources should be committed to it to help build capacities.
  • Improvement of the legislative, regulatory, tax and legal environment in the markets were the industry operates.
  • Infrastructure institutions need to cope with the growing needs of the Islamic Banks and Markets dynamics. Some of these institutions have actually remained committed to the development of the industry as per their mandate but the majority have in a way or another shifted their focus away from this objective.

How is Al Baraka Banking Group, being the largest Islamic banking group in the world, performing in Bahrain and its global operations?

ADNAN AHMED YOUSIF: I am pleased that despite all this turbulence, we have kept our heads high and achieved decent results.

I am quite sure that you have  heard positive comments or read many reports on our Group’s performance, but I must say that the most commendable one is what I recently heard from a business journalist who has stated that the excellent performance of the Group does not merely reflect a sign of sound management or business model, but it does point out strongly that the confidence in the Group’s future performance has actually increased. I believe we just need to remain committed to our business model which is based on diversity, depth and commitment to the highest professional and ethical standards.

The financial and operational results achieved reflects the keenness of the Group to grow steadily and efficiently, despite growing regional and global challenges around us, and growing regulatory, technical and human requirements. We were able to keep pace with all these challenges and requirements, committed to the highest professional and ethical values and principles, thanks to the implementation of strategies and programs that were applied under the supervision of the Board of Directors of the Group, supported by strong technical, financial and human resources owned and long experience of our banking units in the markets where they operate.

We are determined to continue to invest our substantial financial resources and expertise and the wide geographic network of the Group’s subsidiary units towards maximizing the returns to our shareholders and the investors in the Group by implementing business strategies based on improving the quality of our products and services, offering more innovative products, expanding the branch network of the Group subsidiary units in thirteen countries, strengthening the relationship with our partners, investors and customers and entering new markets, as well as modernizing and developing the human, operational, regulatory and technical infrastructures at the Group and subsidiary banking units levels.

The subsidiary units of the Group in Turkey, Egypt, and South Africa have resumed expansion by opening new branches in the first quarter of the year and they intend to open 50 branches as  part of their plan to aggregate a total of 500 branches during the coming three years, and this will have direct and positive impact on growing their deposit base and financing portfolios.

We are very pleased to see the contribution of all our banking units in the growth of profits of the Group, which reflects the sound financial positions enjoyed by these units, although there is political transformation in some of the countries where our Units operate, which clearly influenced the financial and economic activity. Aside, noteworthy isthat the cooperation between the Group’s units in trade financing activities for MENA countries have increased, which contributed to the emergence of the Group as a key player in promoting trade and investment between these countries.

We have also taken strategic and systemic steps to strengthen the rules and practices of social responsibility and compliance within Al Baraka Banking Group and its banking units, where we intend to implement many distinctive programs during the next phase, which of course, will be in line with the new identity of the Group.

In accordance with our new strategy, we have many plans and initiatives that we intend to implement and that will enhance the standing of ABG in international markets.  These will include launching new innovative products and services in the markets. All of these plans will be implemented successfully, Allah willing, considering that we are the only Islamic banking group that has such diversity of geographical presence and excellent knowledge of the markets.


What are your expansion plans, in the GCC, Asia and other geographic locations?


ADNAN AHMED YOUSIF:  Al Baraka Banking Group is today a leading and fully-integrated Islamic financial services provider to our corporate, SME and individual clients in 15 countries which are served through more than 400 branches. We are planning to open 50 more branches bringing our branch net-work to 450.

We will continue our expansion in all markets as planned through various means including but not limited to capital support to the established units, seizing new opportunities especially in the Far East, Mediterranean and Europe.

As you also headed  the Union of Arab Banks, how is the banking segment in the Arab region performing/projections towards the end of the year. Please also give the details of total assets, growth year on year basis?

ADNAN AHMED YOUSIF: The most important and crucial change we need to see today in the Arab region is the creation of a civil community that respects and protects all elements of society in the framework of equality amongst all, in terms of rights and duties. No change will be complete with this.

The Arab world is facing multi challenges. There is a crying need to establish over 50 million jobs within the next ten years to accommodate the young generation into the labor market.

Keeping this as our most important goal, we have to also aim to achieve economic growth and advancement, better living standards, and enhancing the social security networks for the weaker segments of society – from both an economic and social perspective. We need to have the will to take the right path in order to provide better opportunities for the uprising youth, who has nowadays gained vast capabilities through the high paced with which technology is evolving and the widespread Inter communications technology solutions due to efficient interaction & cooperation with capable and advanced countries in transferring some of its abundant expertise in this matter.

The painful process of change has to be endured to ensure there is no recession and more trouble. Some countries have achieved over the course of three to four decades what others have failed to accomplishing a whole century, reaching distinguished positions and leading them to become financial, touristic and media hubs.

On a more positive note, the Middle East’s financial industry is one of the few in the world that has experienced continuous growth since the financial crisis. Indeed Arab banks show no sign of ceasing their rapid expansion. Thanks to the steadier and more cautious pace of Middle East’s financial industry, the region’s banks escaped, for the most part, unscathed from the global financial crisis. However, that is not to say the region was invincible to the downturn. Several Arab banks have experienced a decline in profits since 2008.

In terms of a single market, Saudi Arabia continues to boast the largest financial sector of the region. Saudi’s sector alone makes up almost 30% of the top 100 total capital. The Kingdom is home to not only one, but two of the most profitable Arab banks. However, Saudi faces some competition for its place as number one (financial sector size) as the UAE has become a serious contender. The UAE’s banks now contribute to 23.3% of total Tier 1 capital, which is only approximately 4% less than Saudi Arabia’s banks.

GCC’s banks remain major contributors to regional industry growth, having 58 banks listed in the top 100. Emirates NBD ranked first (growth of 11.3%) in the top 10 banks by assets followed by eight other GCC based banks with Arab Bank, Jordan the only non-GCC bank on the list.

Bahrain as the main regional centre of the Islamic banking?

ADNAN AHMED YOUSIF: As we all know that Bahrain has long been considered a strategic trading post between East and West. Its history goes back more than 4,000 years, when the Dilmun civilisation lay at the heart of the world’s trade routes.

In modern times, Bahrain was the first nation in the Gulf to discover oil – and the first to  recognise the need to diversify its economy. Today, Bahrain’s proximity to major oil  producers and affluent markets has contributed to its successful development as an  acknowledged international banking and financial centre of excellence.

This is evidenced by the remarkable presence of local, regional and major global financial institutions, all of which have taken advantage of the many opportunities for banking business that exist in the Kingdom. The country thus plays host to over 300 financial institutions undertaking various banking activities and represents a unique blend of local, regional and international names, as well as offering a diversity of financial services and products. Bahrain has also emerged as the world’s premier Islamic financial centre, with 27 Islamic banks and 11 Islamic insurance (takaful) companies operating from the Kingdom.

Bahrain’s growing reputation as a centre of financial excellence is reflected by the steady increase of financial institutions registered in the Kingdom, which has been paralleled by substantial and steady balance sheet growth despite the current International Financial crisis. A review of the sector was conducted in March 2006 by the International Monetary Fund Financial Sector Assessment Programme (FSAP) which yielded positive results and concluded that Bahrain’s prudential regulations were modern and effective. Bahrain was the first country in the region to implement regulations specifically for the Islamic Banking sector and the first to start sovereign sukuks in 2001. All this has helped enhancing the reputation of Bahrain as a highly respected global leader in Islamic banking. The country now hosts some 50 Islamic Initiations. The government is proactively encouraging the sector to strengthen its practices. The government has opened the door for almost most of today’s infrastructure institutions such as the Accounting and Auditing organizations for the Islamic Financial Institutions AAOIFI, the general Council for Islamic Banks, the Islamic Rating agency, the liquidity management center.