The small niche player expects to grow by at least 100 per cent over the next three years on the back of the rapid growth of global "oil dollar" capital.

CEO and senior executive vice president Suwan Damnernthong believes the capital from oil exports, mostly earned by Muslims, will provide his bank with high growth potential similar to what is happening around the world.

"Some customers came to my bank on their own saying they need to do business via our bank, as their trading partners in the Middle East are more comfortable with only Islamic banks. This is our strong point and I see high growth potential," Suwan said on the sidelines of last week's Global Islamic Finance Forum in Malaysia.

Being compliant with shariah Islamic law, Suwan believes his bank would benefit from trade between Thai customers and their counterparts who are Muslims, particularly in the Middle East.

Under shariah law, Islamic banks all over the world conduct their business not only under traditional banking standards but also Islamic rules. For example, Islamic banks cannot provide interest to depositors. They instead provide dividends or returns under a profit-sharing condition.

"Gulf money" has also boosted substantial Middle East investment funds due to high oil prices. According to a Goldman Sachs report presented last week at the forum by Mark Machin - co-head of Investment Banking, Asia, for Goldman Sachs (Asia) - the potential investment earned from oil exports is estimated at US$92 billion to $125 billion (Bt3.22 trillion to Bt4.37 trillion) per year, $46 billion to $74 billion of which will be allocated for new equity investment.

Out of this amount, $6 billion-$12 billion is estimated to be invested in equity markets in Asia.

This is in line with a statement made by Dr Zeti Akhtar Aziz, the governor of Bank Negara Malaysia, at last week's forum. She said a "new Silk Road" between Asia and Middle East was flourishing as world trade has on average expanded by 10 per cent over 2001 to 2005, while Asia's trade with Middle East has increased on average by 24 per cent.

While the Gulf is the major supplier of fuel to Asia, Asia in turn supplies manufactured goods and food to the Gulf. Investment projects in Asia amounting to more than $160 billion to be financed by the Gulf states have been announced since 2005.

With total assets of only about Bt12 billion, Islamic Bank of Thailand, which merged with the shariah operation of Krung Thai Bank late last year, plans ambitious growth to boost its assets to more than Bt20 billion this year, Bt40 billion next year, and Bt80 billion in 2009.

Suwan believes the bank will get Bt3.3 billion in new capital from the Finance Ministry, which will boost paid-up capital to Bt4 billion. This will be more than adequate for aggressive expansion over the next two years. The Islamic bank is one of five state-owned specialised financial institutions to recapitalise this year.

"We were not ready last year, but are ready for expansion this year," he said.

Suwan said Islamic Bank of Thailand would expand its branch network from the current 29 - 11 of which located in the five deep South provinces - to cover all major cities. He acknowledged that the low number of branches was the bank's weak point.

However, despite high growth potential, the Islamic bank has also experienced several obstacles that have prevented rapid growth.

Familiar with Islamic banks for five years, Suwan said many still misunderstood its role by linking the bank with terrorism activities in southern Thailand. That has discouraged non-Muslim customers from using its services.

With shariah rules, financial products from the Islamic bank have narrower spectrums than conventional banks, but Suwan says this is not a big problem.

In addition, like other Islamic banks in the world, it is quite difficult to find executives who know about both the banking business and shariah rules, although it is less difficult to train staff to offer products to customers.

Some tax regulations have also been obstacles for the bank's business, while there is a need for more understanding from authorities about Islamic finance.

Jiwamol Kanoksilp

The Nation

KUALA LUMPUR