Interpreting Middle East Economic News and Analyzing Market Trends

Ambitious Gulf investors to launch Islamic bank in Luxembourg with goal of serving wider European market

 

Islamic Bank in Lux

Gulf investors are again attempting to launch an Islamic bank in mainland Europe, this time in Luxembourg.  There have been previous attempts at launching Islamic banks in France and Germany, but they were never launched siting an unaccommodating banking regulator as the reason.  Other Islamic banks were launched in Switzerland over the years, but their objectives were very narrow in scope.  The UK, on the other hand, has been the most successful in this regard since it was the first Western country to adopt Islamic banking regulation.  Today, there are four Islamic banks operating in the UK, one retail and three investment banks.  Will an Islamic bank in Luxembourg be successful?

 

Private investors from Gulf Arab countries, including a royal family from the United Arab Emirates, plan to establish the first full-fledged Islamic bank headquartered in the euro zone, an executive said on Tuesday.

The investors aim to launch the venture, named Eurisbank, in Luxembourg during the last quarter of 2014, said Ammar Dabbour, managing partner at Excellencia Investment Management.

With initial capital of 60 million euros ($80 million), the bank would offer retail, corporate and private banking services, and would open branches in Paris, Brussels, the Netherlands and Frankfurt.

In addition to the royal family from the UAE, Eurisbank will be owned by a bank from a country in the Gulf Cooperation Council and other private investors, said Dabbour, who declined to name them. Excellencia, an Islamic fund manager based in Luxembourg, has been contracted with consultants Deloitte to handle procedures for establishing Eurisbank, he said.

The founders of the bank plan to apply for a licence in January and expect to obtain regulatory approvals by April, Dabbour told reporters at the Global Islamic Economy Summit in Dubai.

Islamic finance, which bans interest payments and pure monetary speculation, has been slow to develop in Europe, but Luxembourg has successfully marketed itself as a centre for issuing and trading Islamic bonds.

Since the global financial crisis, some European governments have shown more interest in Islamic finance, partly because it could be a way to attract cash-rich funds from the Gulf and southeast Asia.

Read the full story from Reuters.

 

Eurisbank has set some high targets.  It’s the first Islamic bank to state its wider European objectives.  Unlike the Swiss Islamic banks, which were merely setup to manage the wealth of a few high net-worth families from the Gulf, Eurisbank hopes to target the Muslim markets in key Eurozone countries.  The only Islamic bank operating at the retail level in the Eurozone is Kuveyt Turk Participation Bank, a subsidiary of Kuwait Finance House.  Kuveyt Turk opened a branch recently in Germany to serve the large Turkish population.

 

With a capital base of only 60 million euros, it difficult to see how the bank will hit its targets.  Gulf investors are never short on grand plans, but they tend to fall short on the execution side.  The history of The Islamic Bank of Britain is a good example, but there are several others out there that highlight the need to have good execution.  Let’s hope that this time they thought this one through properly.