Manama: Bahrain-based CIBAFI raised its ‘global voice’ to the Financial Stability Board (FSB) over concerns of impact from correspondent banking decline affecting its member Islamic banks.
Aligned with its role as advocate of the Islamic Financial Services Industry (IFSI), the General Council for Islamic Banks and Financial Institutions (CIBAFI), the global umbrella of Islamic financial institutions, announced that it has raised its ‘global voice’ to the Financial Stability Board, which coordinates financial regulation for the Group of 20 countries (G20) pertaining to the “Correspondent Banking” matter.
In its formal communication to the FSB, CIBAFI highlighted that correspondent banking is an issue of particular importance to CIBAFI
members – Islamic banks, few of whom have a global reach and most of whom are in emerging or developing markets. They are therefore very dependent on relationships with other banks to be able to provide basic international services to their customers. Because of the countries in which they are based, some have suffered particularly from de-risking by international banks. This is in reference to statement by the FSB confirming that the decline in correspondent banking remains a source of concern with potentially adverse consequences for global trade, financial inclusion and financial stability.
CIBAFI conducts a regular Global Islamic Bankers Survey (GIBS). The latest version, which is about to be published on 2nd May during CIBAFI Global Forum in Istanbul, Turkey, was conducted in late 2017 and early 2018, and attracted 103 responses, from institutions in 31 countries. It therefore gives a good view of opinions across the Islamic banking industry, and on this occasion gives some information that may be helpful to the FSB work on de-risking and correspondent banking issues.
Part of the survey is a “risk dashboard”, in which Islamic banks are asked to rate the importance to them of a number of specific risks. In this edition, for the first time, “de-risking risk” was included, i.e. the risk posed by the closure of correspondent banking relationships. Overall, this risk scored fifth of the 20 risks listed and, when the responses were analysed by region, it scored equal first in two regions (West, Central and South Asia, and Middle East ex-GCC), and second in North Africa.
In addition, more detailed questions asked CEOs of Islamic banks, to what extent the bank had experienced a decline in correspondent banking relationships as a result of ‘de-risking’ over the last five years. Almost one third of the respondents (32%) said that they had witnessed a significant decline, while a further 22% indicated that they had experienced some decline. A further third (36%) said that they had experienced ‘no significant change.’
These global figures conceal some interesting regional variations. 70% of Islamic banks in the GCC indicated that they had experienced no significant change with the balance split between significant decline and some decline.
On the other hand, fully 70% of Islamic banks in West, Central and South Asia and 80% of banks in Sub-Saharan Africa indicated that they had seen either significant or some decline, while in North Africa over 66% of banks indicated that they had seen significant decline.
Islamic banks in Europe were the most relaxed of all regions in terms of the effects of de-risking on the businesses. These banks gave a straight score of 2.00 for all business lines except trade finance/letters of credit/documentary collections, which nudged up to 2.20.
These data overall perhaps suggest that the practical impact of de-risking has to date been felt across a relatively few banks and geographies, but it has been sufficient to raise concerns for the future more widely, hence this is mission of CIBAFI to raise such issues on global arena in order to promote sound Islamic financial services practises.
In its submission to the FSB, CIBAFI expressed its appreciation of the work that the FSB does to maintain sound practices of the Financial Services Industry.
Full comments to the FSB include providing industry stakeholders with a platform to discuss emerging issues, representing the industry at major global financial events, and sharing knowledge through specialized publications and comprehensive professional development programmes.
