By Y-Sing Liau – Analysis
SINGAPORE (Reuters) – Islamic banks have been barely bruised by the global credit crisis so far, but the worst is yet to come as falling property and commodity prices and slowing economies start to hit the sector.
As the global economy buckles, credit lines tighten and consumer confidence crumbles, Islamic institutions — which manage an estimated $1 trillion worldwide — will not escape the pain that is plaguing conventional lenders in the West.
Sliding commodity and property prices in predominantly Muslim countries in the Middle East and Southeast Asia are likely to have a particularly strong impact on the sharia market due to the industry’s heavy reliance on those assets to support deals.
“Islamic banks are heavily exposed to real estate and private equity in many of these markets,” said Abdulkader Thomas, chief executive of Kuwait-based sharia advisory firm Shape Financial.
“If these markets are overpriced — which some of them are — then Islamic banks could well be particularly exposed.”