Dubai, Riyadh, Asharq Al-Awsat- Chairman of the Union of Arab Banks, Adnan Yousif, told Asharq Al-Awsat that the region is currently moving past the global financial crisis, and that the financial crisis in Greece will have scant impact on Islamic banks, although this may cause a restricted amount of damage to conventional Arab banks.
Yousif, who is also the CEO of the Al-Baraka Banking Group, estimated that the world will be facing a new international financial crisis in the next 3 or 4 years, and that this crisis will begin in China and India and will have a large impact on the US bond market. Yousif also attributed the global financial crisis to the increasing reliance upon investment instruments which are based on debt, and such instruments being utilized to finance genuine economic activity.
In his interview with Asharq Al-Awsat, Yousif said that the global financial crisis has ended, but he estimated that within the next three or four years the world will be facing a new financial crisis that will begin in India and China. Yousif said that the decrease in exports from both countries increases the probability of this international financial crisis taking place in the future.
Yousif also said that this expected financial crisis will be short-term, citing the fact that China and India do not have external debts, which is something that will reduce the impact of this financial crisis on them. In this context, Yousif called on the international parties to not overlook such an eventuality occurring, telling Asharq Al-Awsat “we should not cover our eyes and say that China and India are developing in a good manner and that there are no fears about them.”
The Chairman of the Union of Arab Banks also told Asharq Al-Awsat that the financial crisis that is currently taking place in Europe will not have a direct or significant impact on the Arab banking sector. He also revealed that Greece has no direct ties with investment banking in the Arab world, and that the impact of the Greece crisis will not go beyond the European Union.
Yousif denied rumors that the Greek financial crisis will have a significant effect on Arab countries, telling Asharq Al-Awsat that the Union of Arab Banks previously clarified that the Greek crisis is expected to have only a slight impact on the Arab banking sector, and that there are no Greek banks in Arab countries. Yousif also said that in spite of the global financial crisis Arab banks have continued to experience extremely good growth and that by the end of 2009 the Arab banking sector was worth more than 2.3 trillion dollars.
As for whether the Arab region will be affected by the future global financial crisis predicted by Yousif, he told Asharq Al-Awsat that this crisis “will have a limited impact on the Arab region, but it will affect the US bond market as China is one of the largest importers of US bonds.”
Yousif believes that many economists blame financial derivatives as being a major cause behind the global financial crisis, and that “this is an opinion that I agree with to a large extent, this is despite the fact that the defenders of derivatives also have arguments that seem logical and we cannot ignore this, however at the same time we must deal with this [financial derivatives] with great caution.”
The Al-Baraka CEO described financial derivatives as being ticking time bombs, whether for those who deal in this financial product or for the financial system as a whole. He said that derivatives “as their name suggests are an investment tool derived from different investment products, in this case investors are able to buy investment products (such as futures) rather than buying shares.”
Such contracts see investors buying and selling derivatives, whose value is linked to the expected future price movement of the asset that this derivative is linked to, called the underlying, such as a share or a currency or a commodity, such as oil or natural gas.
The latest statistics on the derivative market indicate that the US derivative market alone is wroth around 300 trillion dollars, which is 20 times the size of the American economy. While at an international level, the derivative market is worth closer to 600 trillion dollars. This is according to a paper presented by Chairman of the Union of Arab Banks, Adnan Yousif, to the Dubai School of Government on the effects of the global financial crisis on Arab and Islamic financial institutes and countries.
Financial derivatives are known as being financial tools whose value is derived from the underlying, such as gold, minerals, oil, etc. Yousif stressed the importance of crystallizing a global set of economic standards. Experts in the field have stressed that the standards being implemented are the US financial standards [Generally Accepted Accounting Principles or GAAP] and the International Financial Reporting Standards [IFRS], and that it is important that countries implement national [financial] standards that are in accordance with these.
Yousif added that the disparity in the way that international companies implement these standards makes it difficult to put in place rules and regulations with regards to investment banking, and there is pressure from financial institutes and global markets to standardize this industry in order to allow them to finance companies around the world according to a clear vision.
Yousif also told Asharq Al-Awsat that the Greece crisis has revealed the need to review the criteria for measuring capital risk in banks around the world, suggesting that the bank’s working capital be taken into accounted. It is worth noting that some central Arab banks have already begun to apply these standards, and take into account profits when deciding credit.
Al-Baraka CEO Adnan Yousif also said that the measures taken by industrial countries over this issue vary, but in the end the goal is in line what is called for by the markets, the investors, and the financial instates. Yousif renewed his calls to all financial institutes in the Arab world to participate in such talks and integrate this in their operations, in line with the role that emerging countries are beginning to play in reformulating the economic and global financial system.
The Al-Baraka Banking Group Bahrain, is listed on the Bahrain and Dubai Stock Exchanges, and it is a leading international Islamic bank. The Al-Baraka Banking Group provides retail, commercial, and investment banking services in accordance with Islamic Shariaa Law.