Europe Islamic banking to slow on global crisis

KUALA LUMPUR: The rise of Europe’s nascent Islamic banking sector will be slowed as paralysed credit markets dampen demand for Sharia bonds and weak property prices hurt the industry, European Islamic Investment Bank said yesterday. A slowing global economy would also weigh on the sector, the London-based lender said, reinforcing a growing view that Islamic finance – despite its strict lending rules – may prove to be more vulnerable to the global downturn than earlier thought.

European banks, along with US lenders, have been badly hit by the global credit rout. European Union leaders vowed action on Thursday to underpin growth after world governments pledged $3.2 trillion to stabilise the financial sector.

Sharia banks would, however, be spared some of the fallout affecting conventional lenders as they are not exposed to subprime loans, European Islamic Investment Bank chief executive John Weguelin said.

“Islamic financial institutions should be no different from other institutions to the extent that they operate in the money markets and the money markets have been impacted – both Islamic and conventional – in the same way with the tightening of liquidity,” Weguelin said.

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