Monday 13 April 2009

Executive says a bank collapse could be possible

DUBAI, April 13 (Reuters) - Islamic banks will face a crisis scenario by the end of September that could include forced consolidation if liquidity does not return to the financial sector, a leading banker said on Monday.

Sohail Zubairi, chief executive of Dar al-Sharia consultancy, said retail lending will be hit first if bank funding remains sparse through the third quarter but that worse could be in store, including a possible bank collapse.

"Anything is possible in this scenario," he told the Reuters Islamic Banking and Finance Summit in Dubai. Dar al-Sharia was set up in July 2008 by Dubai Islamic Bank to provide financial and legal expertise for the Islamic finance industry.

"There is a real threat to the business of Islamic banking," Zubairi said, referring to the Islamic lending sector overall. "If the liquidity does not return, we will not be able to continue doing our business."

"Our problem is the liquidity. We haven't lost anything. We have been making profits. But we are suffering because of the lack of liquidity," he said.

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