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The global financial crisis has triggered a deeper and more comprehensive scrutiny of banks by regulators working hard to maintain the stability of their financial systems, a speaker from Gulf Finance House (GFH) said at a key seminar in Paris.
Even in jurisdictions such as Bahrain, which have shown considerable resilience in the face of the current turmoil, financial institutions and the Central Bank of Bahrain (CBB) are working much more closely to monitor the effects of the crisis, which continues to unfold and evolve, said Dr Ala'a Al Yousuf, chief economist at GFH.
He was speaking at a seminar on 'Islamic Banking, Insurance and Finance in the Kingdom of Bahrain'. The one-day event was organised by the Embassy of Bahrain in Paris and the Paris Chamber of Commerce and Industry, with GFH as the platinum sponsor.
"The Islamic finance industry, of which GFH is a prominent player, avoided the mess of the subprime crisis, thanks to its strong, asset-backed business models, which are rooted in Islamic principles," said Dr Al Yousuf during a session on 'The supervision of Islamic banking and the role of the CBB'.
"Without doubt, adherence to Islamic principles has stood GFH and other Islamic banks in good stead," he said.
The ban on interest, speculation, trading debt and complex structured products prevented Islamic financial institutions (IFIs) from investing in the assets that turned toxic for conventional banks. The concept of sharing of risks and profits has also meant that IFIs were inherently more conservative than their conventional counterparts.
"What the current crisis has done is tested the Islamic financial system and revealed its strengths, which are inherent, as well as its vulnerabilities, which stem from its linkages with the global economy and conventional financial system," said Dr Al Yousuf.
However, banks based in Bahrain, including the GFH, have so far shown considerable resilience, he noted.
While regulators around the world have been injecting huge amounts of money to bail out some of the world's largest banks, the CBB has not deemed it necessary to make a similar intervention, despite months of turmoil in the international financial markets.
