Dubai:Dubai Islamic Bank (DIB) is joining regional rivals seeking acquisitions overseas as new capital rules limit opportunities at home.
The world's oldest Sharia-compliant bank is in talks to buy 40 per cent of a financial institution in Indonesia, Dubai Islamic Bank Chief Executive Officer Adnan Chilwan told reporters on May 1. The deal will conclude this year, he said, without identifying the target.
Banks in the six-nation Gulf Cooperation Council (GCC) are pursuing opportunities abroad as loan growth at home is constrained by central bank rules on exposure and investment limits, designed to help protect them from a financial crisis. Lending in Indonesia jumped almost 22 per cent last year, compared with about 7.0 per cent in the UAE, official statistics from the two nations show.
"Loan growth is much lower locally than previous cycles due to central bank restrictions," Emad Mostaque, a London- based strategist at Noah Capital Markets, said by e-mail May 1. "So they are looking to go overseas to find this growth, fueled by cheap local funds."
For Islamic banks, markets including Turkey and Indonesia are especially attractive because they have predominantly Muslim populations. Qatar Islamic Bank is in talks to buy a stake in Asya Katilim Bankasi in Turkey and Masraf Al Rayan acquired Islamic Bank of Britain in January.
"There is some room to grow at home as the economies expand, but moving into the likes of Turkey or Indonesia offers much more scope," Taher Safieddine, an analyst at Shuaa Capital PSC in Dubai, said by phone May 1. "For Dubai Islamic Bank the lower cost of funding gives them firepower in revenue generation."
The three-month Emirates Interbank Offered Rate, which is used by banks in the UAE to price some loans, dropped seven basis points in 2014 to 0.74 per cent, the lowest since at least 2006, when Bloomberg began collecting the data.