AMMAN: Jordan Dubai Islamic Bank plans to more than double its branches by the end of 2010 and is helping Jordan’s government issue an Islamic bond in the country’s rapidly growing market, its chief executive said.
Jordan Dubai Islamic Bank is the latest entrant in the fast-growing Islamic banking sector — opening its doors in January and listing on the Amman bourse in May — and Jordan has become an important market.
Saudi-based Al Rajihi Bank plans to open a branch in Amman later this year.
"There is great potential in the Jordanian market. But what was putting a cap on it was lack of products and quality. We see the trend is Islamic banking and I see the sector’s market share doubling in a few years," Sami Al-Afghani told Reuters in an interview on Monday.
Islamic lenders currently contribute 11.6 percent of the total assets in Jordan’s banking system, which stood at 32 billion dinars ($45 billion) as of February, and a 15 percent share of total bank credit.
Jordan Dubai Islamic Bank is majority owned by Dubai Islamic Bank, the third-largest Dubai-based bank by market value, and Jordan Dubai Capital, a subsidiary of Dubai Holding, the investment vehicle of the ruler of Dubai.
The Islamic lender’s deposits and financing have grown quickly since it was launched and it plans to increase its branches to 20 by 2012 from its current four, Afghani said.
He said the bank would add six branches by the end of the year, five offices in 2011 and then five more in 2012.
In a market where most of Jordan’s 23 banks, reeling from the impact of the global downturn, have been risk averse, the new Islamic lender so far has extended 120 million dinars ($170 million) in loans to help build what Afghani called a "healthy and solid" portfolio.
"We are targeting top-tier customers who have weathered the ups and downs of the economic cycle. Noncyclical sectors operate in good times and bad times, and do not veer away from their core activities," Afghani said.
He said the Islamic lender would expand its range of Sharia-compliant products from ijarah, mortgage financing, and murabaha, or cost plus financing used to for asset purchases, to equity-type products such as profit-sharing mudaraba.
Jordan Dubai Islamic Bank has given the Jordanian government a proposal on setting up a special purpose vehicle so it can participate in an Islamic bond, or sukuk.
The government has said it was working on ironing out legal impediments that currently do not allow it to forgo title on its assets or property when it borrows as is required for sukuk.
Afghani said the sukuk would allow the government to tap into new sources of funding and the bank would be able to put its excess funds to work.
"We would love to utilize our idle money. It’s a win-win situation. I am keen to develop this market as it has good return and low risk while the government is keen to diversify its funding sources by tapping sukuk," he said.
He said getting Jordan’s central bank to apply the Islamic Financial Services Board (IFSB) standards on capital adequacy ratios to Islamic banks would also help them to expand their financing.
"A big part of the liquidity of Islamic banks is idle and that puts us at a disadvantage with conventional banks in terms of profitability and your bottom line," Afghani said.
Due to the absence of Islamic compliant paper, only conventional banks get exemptions for investing in high yield interest-based Treasury bonds and bills.
