Thailand’s Shariah banking grows quickly

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Bandhit Sotipalalit, Chairman of Islamic Bank of Thailand

Thailand’s one and only Islamic bank is in a rapid expansion mode, with dozens of new branches to open in 2012, and sukuk issues and takaful products planned. It is also working on launching its first GCC branch in Dubai.

Interviewee: Bandhit Sotipalalit, Chairman of Islamic Bank of Thailand

Realizing the huge success of Islamic banking in its neighbouring country Malaysia, Thailand reworked its banking regulations in 2002 and took action to set up the country’s first Islamic-only bank to cater mainly, but not exclusively to the seven million Muslim in the country. The Thai Ministry of Finance issued the Islamic Bank of Thailand Act in the same year, which constituted the establishment of the Islamic Bank of Thailand one year later. This state-run bank is administered by a board of governors and an advisory council on Islamic banking, which allows it to operate in accordance with Shariah rules on all transactions. It is owned by the government. Today, the Islamic Bank of Thailand operates more than 100 branches countrywide under the brand name of iBank.

Q: How large is the Muslim population in Thailand and how many of those people does the Islamic Bank of Thailand hope to address?

A: We have almost seven million Muslims in the country, and the Islamic Bank of Thailand wants to address at least half of them. We are currently working on expanding our branch network all over Thailand. By the end of 2011 we had 101 branches, and 2012 will see 50 more branches.

Q: Will there be branches in other countries as well?

A: Yes, we will open a branch of the bank in Dubai, our own branch, not a partnership. We will offer the full range of our products there, and we hope that customers from surrounding countries will use our services as well. I am also thinking that in Dubai we can attract customers from countries such as Iran, where we cannot go due to international sanctions. We also plan to expand to Malaysia and Indonesia, countries with huge potential in Islamic banking, and to China.

Q: How are you funding this expansion?

A: The Islamic Bank of Thailand has a very healthy balance sheet. Our assets amount to 100 billion baht, and the 2012 profit was 1.13 billion baht. We also plan a stock exchange listing in Thailand in about two years to finance our future expansion, whereby the majority of the government shares will be sold to private investors. I am sure that this will attract interest from GCC investors.

Q: So far Islamic Bank of Thailand is the only retail bank that offers Islamic banking in the country. Is there room for more institutions?

A: Yes, we are currently the only bank that offers Islamic banking and finance, after we acquired the Islamic banking windows of the Government Savings Bank and Krungthai Bank. However, we are serving Muslims and non-Muslims, at the moment even more non-Muslims. And yes, there is still enough potential, other banks can come and apply for a license. I am quite sure that new Islamic banks will enter the country and there is business for them as the large domestic banks in Thailand are still hesitant to offer Islamic finance, mostly because they don’t have the expertise and the risk appetite to build up this segment.

Q: How does the process of creating new products work for your bank? Are there any special products?

A: We offer Shariah-compliant products only, in retail banking, commercial banking, cash management, and trade finance. There are also many non-Islamic businesses among our customers, for example large corporations such as property developer Sansiri, and also a number of manufacturing companies. We have a Shariah council comprising of five members, Muslim Thais, who approve any of our products, and two advisors from Pakistan and Malaysia. Among our approved products is also grass roots banking, or microfinance, in rural areas, where we help people finance their small businesses, for example for vendors or motorbike taxis or else. We don’t charge interest on loans as per Islamic rules; we share the profits with the customer on a large and small scale.

Q: The year 2012 will see the first issue of a sukuk bond by the Islamic Bank of Thailand, worth five billion baht. Will there be more sukuks? Where do you see the main target groups for such issues?

A: Yes, we are in the final approval stage by the government for our first sukuk issue. The money will be used for the bank’s expansion as well. We are offering this sukuk also to GCC institutions via brokers. If it proves successful, there will be more sukuks being issued by the Islamic Bank of Thailand. I think, among the GCC countries, Bahrain will invest a lot, as Thailand traditionally has good relations to this country.

Q: Does your bank engage in Islamic insurance products (takaful etc.) or is this planned?

A: We are about to buy licenses for takaful products and will open a new company that will offer these insurances. It will be a subsidiary of Islamic Bank of Thailand. This is another part of our expansion. The government sometimes gets worried that we are expanding too quickly [laughs].

Q: What does trade financing of the Islamic Bank of Thailand comprise and how does it work? Is this also targeted at GCC investors?

A: It’s trade and export-import financing under Islamic rules. This means we buy products from companies, bring them in or out, and sell them with a profit which is shared among us and the trading company. This is certainly attractive for GCC traders.

Q: Do you agree that Islamic finance is generally more resilient to financial crises? If yes, why?

A: Yes, I believe it is more resilient as the past has shown, especially during the latest global financial turmoils. The main reason is that Islamic banking is more conservative and does not invent risky and fanciful financial products as the Western banks do because this is not complaint with Shariah rules.

Q: Where do you get your qualified personnel from?

A: Mostly by training them ourselves within the company and sending them to Malaysia and even London with its huge Islamic banking industry.

Q: What is your opinion of the policy of the Bank of Thailand?

A: I think they are trying their best, but sometimes could be more flexible.

Q: Now Thailand, the Buddhist country, has its first Islamic bank. What about establishing a Buddhist bank if such thing exists?

A: Oh yes, this is a real option. A Buddhist bank could work under certain principles, for example not to invest in businesses that deal with forbidden food or that harm animals. The target group could be Buddhist monasteries who in fact sit on a lot of donated money which they need to put somewhere.

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Reading Time: 4 minutes

Bandhit Sotipalalit, Chairman of Islamic Bank of Thailand

Thailand’s one and only Islamic bank is in a rapid expansion mode, with dozens of new branches to open in 2012, and sukuk issues and takaful products planned. It is also working on launching its first GCC branch in Dubai.

Reading Time: 4 minutes

Bandhit Sotipalalit, Chairman of Islamic Bank of Thailand

Thailand’s one and only Islamic bank is in a rapid expansion mode, with dozens of new branches to open in 2012, and sukuk issues and takaful products planned. It is also working on launching its first GCC branch in Dubai.

Interviewee: Bandhit Sotipalalit, Chairman of Islamic Bank of Thailand

Realizing the huge success of Islamic banking in its neighbouring country Malaysia, Thailand reworked its banking regulations in 2002 and took action to set up the country’s first Islamic-only bank to cater mainly, but not exclusively to the seven million Muslim in the country. The Thai Ministry of Finance issued the Islamic Bank of Thailand Act in the same year, which constituted the establishment of the Islamic Bank of Thailand one year later. This state-run bank is administered by a board of governors and an advisory council on Islamic banking, which allows it to operate in accordance with Shariah rules on all transactions. It is owned by the government. Today, the Islamic Bank of Thailand operates more than 100 branches countrywide under the brand name of iBank.

Q: How large is the Muslim population in Thailand and how many of those people does the Islamic Bank of Thailand hope to address?

A: We have almost seven million Muslims in the country, and the Islamic Bank of Thailand wants to address at least half of them. We are currently working on expanding our branch network all over Thailand. By the end of 2011 we had 101 branches, and 2012 will see 50 more branches.

Q: Will there be branches in other countries as well?

A: Yes, we will open a branch of the bank in Dubai, our own branch, not a partnership. We will offer the full range of our products there, and we hope that customers from surrounding countries will use our services as well. I am also thinking that in Dubai we can attract customers from countries such as Iran, where we cannot go due to international sanctions. We also plan to expand to Malaysia and Indonesia, countries with huge potential in Islamic banking, and to China.

Q: How are you funding this expansion?

A: The Islamic Bank of Thailand has a very healthy balance sheet. Our assets amount to 100 billion baht, and the 2012 profit was 1.13 billion baht. We also plan a stock exchange listing in Thailand in about two years to finance our future expansion, whereby the majority of the government shares will be sold to private investors. I am sure that this will attract interest from GCC investors.

Q: So far Islamic Bank of Thailand is the only retail bank that offers Islamic banking in the country. Is there room for more institutions?

A: Yes, we are currently the only bank that offers Islamic banking and finance, after we acquired the Islamic banking windows of the Government Savings Bank and Krungthai Bank. However, we are serving Muslims and non-Muslims, at the moment even more non-Muslims. And yes, there is still enough potential, other banks can come and apply for a license. I am quite sure that new Islamic banks will enter the country and there is business for them as the large domestic banks in Thailand are still hesitant to offer Islamic finance, mostly because they don’t have the expertise and the risk appetite to build up this segment.

Q: How does the process of creating new products work for your bank? Are there any special products?

A: We offer Shariah-compliant products only, in retail banking, commercial banking, cash management, and trade finance. There are also many non-Islamic businesses among our customers, for example large corporations such as property developer Sansiri, and also a number of manufacturing companies. We have a Shariah council comprising of five members, Muslim Thais, who approve any of our products, and two advisors from Pakistan and Malaysia. Among our approved products is also grass roots banking, or microfinance, in rural areas, where we help people finance their small businesses, for example for vendors or motorbike taxis or else. We don’t charge interest on loans as per Islamic rules; we share the profits with the customer on a large and small scale.

Q: The year 2012 will see the first issue of a sukuk bond by the Islamic Bank of Thailand, worth five billion baht. Will there be more sukuks? Where do you see the main target groups for such issues?

A: Yes, we are in the final approval stage by the government for our first sukuk issue. The money will be used for the bank’s expansion as well. We are offering this sukuk also to GCC institutions via brokers. If it proves successful, there will be more sukuks being issued by the Islamic Bank of Thailand. I think, among the GCC countries, Bahrain will invest a lot, as Thailand traditionally has good relations to this country.

Q: Does your bank engage in Islamic insurance products (takaful etc.) or is this planned?

A: We are about to buy licenses for takaful products and will open a new company that will offer these insurances. It will be a subsidiary of Islamic Bank of Thailand. This is another part of our expansion. The government sometimes gets worried that we are expanding too quickly [laughs].

Q: What does trade financing of the Islamic Bank of Thailand comprise and how does it work? Is this also targeted at GCC investors?

A: It’s trade and export-import financing under Islamic rules. This means we buy products from companies, bring them in or out, and sell them with a profit which is shared among us and the trading company. This is certainly attractive for GCC traders.

Q: Do you agree that Islamic finance is generally more resilient to financial crises? If yes, why?

A: Yes, I believe it is more resilient as the past has shown, especially during the latest global financial turmoils. The main reason is that Islamic banking is more conservative and does not invent risky and fanciful financial products as the Western banks do because this is not complaint with Shariah rules.

Q: Where do you get your qualified personnel from?

A: Mostly by training them ourselves within the company and sending them to Malaysia and even London with its huge Islamic banking industry.

Q: What is your opinion of the policy of the Bank of Thailand?

A: I think they are trying their best, but sometimes could be more flexible.

Q: Now Thailand, the Buddhist country, has its first Islamic bank. What about establishing a Buddhist bank if such thing exists?

A: Oh yes, this is a real option. A Buddhist bank could work under certain principles, for example not to invest in businesses that deal with forbidden food or that harm animals. The target group could be Buddhist monasteries who in fact sit on a lot of donated money which they need to put somewhere.

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