Swiss banks fail to secure a foothold in Islamic Finance
Competition is fierce among global financial centres to become the ‘Mecca in Islamic Finance’.
With a growth rate of 15% – 20% Shariah banking is currently the most lucrative segment in today’s shattered financial world.
In the Far East, Kuala Lumpur and Singapore are leading the race.
In the GCC, Dubai is hard on the heels of Manama.
Istanbul tries to bridge the gap between East and West.
And in Europe, London became the first Islamic Finance beachhead outside the Middle East, amid strong political support from now-Prime Minister Gordon Brown.
Even Birmingham recently announced its claim in global Shariah finance.
Banks slow to pursue new markets
But where are Zurich and Geneva in all this? Since mid-2007, market leaders UBS and Credit Suisse have mostly been in the limelight because of their huge losses in the subprime meltdown.
UBS had to write down a total of CHF25bn during the last three quarters. Its main competitor, Credit Suisse, also lost CHF2bn in 2007, and suffered losses of an additional CHF2.1bn in the first quarter of 2008.
Share prices in both banks are down 60% and 41% respectively, on a YTD-basis.
What went wrong? Swiss banks obviously hesitated in embracing new markets – and Islamic Finance in particular, while banks in the UK still benefit from a first-mover advantage.
It was in 1998 that HSBC launched its Islamic Finance arm Amanah, convincing the Bank of England some years later to legalise Shariah-compliant home finance schemes.
Although Geneva-based private bank Pictet & Cie launched Islamic Finance services in the same year, Swiss Shariah-compliant services still remain an area of customised solutions for high net worth individuals, while standard products are still rare and Islamic retail banking non-existent Switzerland.
There are four regulated Islamic banks in the UK, but only one is Swiss, which is Geneva-based Feisal Private Bank (offering services since 2007).
No Sukuk and only one Shariah-compliant ETF is listed on the Zurich-based Swiss Exchange SWX, while the LSE became a major capital market for Sukuk, Islamic Mutual Funds and ETFs.
On top of this, not a single Swiss University offers an Islamic Finance curricula. English educational institutions, such as the University of Durham or Cass Business School even attract Arab professionals with their Shariah Finance-related Diplomas and MBA courses.
Growing Middle Eastern financial focus
However, well-known Helvetic names such as UBS, Credit Suisse, Julius Baer, Sarasin or Mirabaud all run subsidiaries in the DIFC.
‘Swiss banks have Middle Eastern assets under management in excess of $200bn, there is no doubt about that’, says John Sandwick, founder and CEO of Encore Management in Geneva.
‘The Swiss regulatory bodies have not dealt with Islamic Finance issues as yet, but they are working on it’, explains Sanjay Vig, Managing Director of Sarasin-Alpen in Dubai.
While the global volume in Islamic Finance is approaching $1bn, the Swiss share seem almost invisible.
With UBS AG, based in the DIFC since 2006, recent applying for bank licences for Saudi Arabia and the Qatar Financial Centre (QFC), there is a glimmer of hope that Islamic Finance might find its way to the ‘treasury of the world’.
Time is running out though: According to the ‘Vision 2015 study, issued in 2007 by the Swiss Bankers Association, Switzerland aims to become one of the top three financial centres in the world within the next seven years.
Increased investment in Islamic Finance could be one of the main drivers to achieving this.