Some Gulf sharia banks seen at peril

By Liau Y-Sing and Saeed Azhar

SINGAPORE (Reuters) - Some Gulf Islamic banks could fail as frozen credit markets and slumping property prices take a toll, but government aid should save the industry from a prolonged slowdown, a leading sharia lender said on Tuesday.

Islamic banks have hardly felt the chill of the credit crisis so far, but some industry experts warn that the $1 trillion industry will not be spared from the fallout as prices of commodities, property and oil slide. All are core drivers of the Islamic financing sector.

Sharia lenders in the Gulf would be harder hit by the credit rout than Asian banks due to their greater direct exposure to the property market, said Badlisyah Abdul Ghani, chief executive of Malaysia's CIMB Islamic Bank.

CIMB Islamic is the world's top arranger of sharia bonds. The lender is part of CIMB Group, which is listed on the Malaysian stock exchange through Bumiputra-Commerce Holdings (BUCM.KL: Quote, Profile, Research, Stock Buzz).

"The sovereign-backed Islamic banks are very safe and they will be supported by the sovereign if they have problems in liquidity," Badlisyah told the Reuters Wealth Management Summit in Singapore.

"But for privately owned banks, they would feel some difficulty. Whether or not they're going to fail is anybody's guess but the expectation is that some will."

PROPERTY BLOW UP

Badlisyah warned that a deterioration in Gulf property markets could have implications for lenders in the region.

"So when the property market blows up, definitely you will see problems in that market," he said.

But he said Asian Islamic lenders are expected to fare better because they have less direct exposure to property markets and funds that invest in real estate.

Kuwait Finance House (KFIN.KW: Quote, Profile, Research, Stock Buzz), the Gulf's third-largest lender, said on Tuesday it is aiming to raise $600 million in funds from Middle East investors in 2009 to buy ships, stakes in private firms and properties in Asia, despite the current market turmoil.

"Of course raising funds is not going to be easy, but this is the best time because if you have the money, then things are very cheap," said the Islamic bank's Singapore chief executive Lim Boh Soon at the Reuters summit.

Lim said most of his own investments are in cash and equities and currently favors gold, and warned that the recent rebound in global equities was likely temporary.

"Personally I think it's a bear trap. This crisis is worse than the Asian financial crisis as it's on a global basis," he said, adding that he expects the downturn to last for the next 18-24 months.

SIGNS OF TROUBLE  Continued...