MANAMA — Bahrain is one of the historical centers of Islamic finance, and will continue to remain that way, despite increased competition from other financial centers in the region and outside, Dr. Ahmed Al Mutawa, Chairman of Gulf Finance House (GFH), said in an interview at Euromoney on Wednesday. “This is played out by the fact that Bahrain hosts over 30 Islamic Institutions, who continue to reside here due to the supportive and developed regulatory framework fostered by the CBB,” he added. He noted that entities like AAOIFI and IIFM are based in Bahrain and these bodies have been central to the development of Islamic finance to date, and will continue to do so in the future. Following the financial crisis, the banking environment in Bahrain has become stronger, he pointed out. As part of the introduction of Basel 3, the CBB has tightened regulatory oversight and introduced stricter capital and liquidity requirements. A number of mergers have also taken place resulting in bigger and stronger banks, Al Mutawa remarked. Excerpts from the interview follow: How positive is investor sentiment and demand for sukuk in the current environment? Over the last several years, sukuk issuance has been over $100bn per year. Over the long term, we expect this to grow substantially, with issuances increasing from sovereigns as well as corporates and more mainstream investors will start to acquire sukuk. However, in the short term there is a risk that there will be a slowdown in demand from this region, due to the fall in oil prices, but hopefuly will recover as it being adjusted to stable prices in the range of $80 pp. Does Islamic finance have the potential to become ‘mainstream' globally? What needs to be done to achieve this? In certain markets like Malaysia, Islamic finance is already mainstream. However, the industry should also introduce more innovative products and services which serve the needs of all clients, whether Muslim or non-Muslim. We believe that the potential is huge given the liquidity available in the GCC which will promote and would consolidate into the global mainstream as common platform. GFH has been through some challenging times in recent years. Where are you now and where are you going next? What is the bank's strategy? It is fair to say, along with many other financial institutions that GFH has been through tough times in recent years. However, we believe GFH has emerged from the financial crisis in much better shape. Today, our balance sheet has been re-structured and both our cash and equity position is much healthier and stronger now than it was before the financial crisis. Our strategy for the coming period has recently been formalized and was announced during our re-branding. It consists of GFH leveraging its existing strengths to transform into a financial group, with different subsidiaries focusing on the key areas of wealth management, asset management, commercial banking, industrials and real estate. We believe evolving into this group structure will provide our shareholders with greater and more stable returns overtime. As part of the new strategy, GFH intends to undertake strategic acquisitions to build a financial group with a complete product offering encompassing wealth management, asset management, commercial banking and other financial services. What are your priorities for the year ahead? We have recently concluded our re-branding exercise and this year is really devoted to implementing our new strategy. We have announced that we are looking at a number of acquisitions of financial institutions and this is one of our key priorities. Providing new and innovative investment products also remains a priority for us and we will be focusing on both private equity and real estate transactions in the GCC, Europe and the US. In 2014, we undertook two landmark deals, the acquisition of a US curriculum school in Dubai and the acquisition of a diversified residential portfolio in the US. Both investments were tailored to meet investor demand of producing annual income. Our third priority is to manage and deliver our large scale infrastructure investments. We believe that we have great infrastructure projects in Bahrain, India, Tunis, Dubai and Morocco, which are currently being executed in JV with local partners to reap their high potential and returns. How much of a challenge is the changing regulatory environment for your business? We don't believe regulations are there as a challenge. We believe regulations are there to enhance overall confidence of both investors and financial institutions. Therefore, as long as changing regulations are serving that purpose, we welcome them. GFH has always strived to adapt its business to an evolving regulatory environment. We work closely with the CBB to ensure full compliance with the Basel 3 framework and maintain a robust capital base to withstand potential shocks. Given the nature of our business, we see it as an essential element of good practice in meeting our objectives for the group, its shareholders and investors. About the current geopolitical environment, what are the most significant risks? GFH has identified a number of geopolitical risks in both this region and outside. These include falling oil prices, QE in Europe, political instability in Syria and a slowdown in economic growth in China. Therefore, we are seeking new investments in markets which are either not materially affected by these events or are benefiting from them. Further such risks provide opportunities along with them, hence we try to set ourselves in the right position to ride the way of recovery or disparity of pricing. What impact does falling oil price have on your business? Overall, the fall in the price of oil has had a negligible impact on GFH's business as our investments and target markets are not wholly reliant or correlated to the price of oil. In fact, from our perspective, we see it as an opportunity to take advantage of a strong dollar to make some immediate value enhancing overseas investments with our clients as they look to diversify away from oil related markets. However, a prolonged depressed oil price (even though we saw a substantial rise in the first week of February) could result in a tightening of liquidity and ability to deploy it at sovereign and quasi-sovereign levels. — SG
