Islamic Banks have it hard as well

From the Business Times:

The industry saw strong growth in 2007 despite the start of the subprime crisis and was still expanding fast until the summer last year, when the credit crunch began to take its toll.

"This year the syariah banks are going to be exposed to the crisis the entire year. Those who survive this year will come out as winners, but others, especially the smaller banks, could merge, be taken over, or simply disappear," BMB Islamic UK Ltd chief executive officer Dr Humayon Dar said in a media interview in Kuala Lumpur yesterday.

Islamic finance is distinctively different from conventional banking in principles. But it does not operate in isolation from the mainstream financial market and hence is not spared from the credit crunch, Humayon said.

Islamic banks probably won't feel much from the subprime crisis, but will most likely feel the pain from their respective country's real estate. Oil rich countries have had property booms in step with the price of oil going up. It just so happens that Islamic banks are concentrated in these oil-rich countries with the exception of a few.

Hardly anyone in the oil business is investing in bringing new supply on stream. Investors in these countries are hit just as hard when oil comes down so they won't be as inclined to invest whether through Islamic banking or non-Islamic banking means.