Analysis of Al Hilal Bank Launch

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Table of Contents

Description of the Banking Market at the UAE at the Time of Al Hilal’s Launch
The Key Issues that the Government Faced at the Time of Al Hilal’s Launch
Factors that Contributed to Al Hilal’s Success
The Challenges Faced by Al Hilal
The Differences in Governance Structure between Islamic and Traditional Banking
The Reasons why Traditional Banks May not Achieve Similar Results as Al Hilal
Additional Notes

Description of the Banking Market at the UAE at the Time of Al Hilal’s Launch

At the time when Al Hilal was launched, the situation in the world financial system was not favorable. The global financial crisis impacted the functioning of many banks that had a good reputation, causing them to close down. Instead of being afraid of such circumstances, Al Hilal made a step forward and compensated for the banks that had retreated by providing its services to customers. The bank did everything possible to keep funding beneficial projects. When other banks were shutting down the doors and abandoning their clients, Al Hilal expanded by opening up new departments. Moreover, there was also an apparent contrast between Al Hilal and other banks. While the latter were saving their capital and did not want to invest into any new national or international projects, Al Hilal did not step back. Thus, the bank’s CEO decided to open a branch in Kazakhstan. This country is known for having rich oil reserves. It can be concluded that the banking market at the UAE was not favorable at the time of Al Hilal’s launch. Nevertheless, the bank did not retreat and did its best to win customers’ trust.

The Key Issues that the Government Faced at the Time of Al Hilal’s Launch

The biggest problems that UAE government faced were the ones concerned with economic collapse. The financial crisis caused many banks to close down. Meanwhile, the government was forced to fund the new bank to make sure that it would be successful. Therefore, it was the government that took the responsibility for Al Hilal’s opening.

The government realized that the Islamic banking system needed support. Thus, it had to think of some government-owned bank, which led to launching Al Hilal. The risk was enormous due to global financial crisis, but government’s efforts along with the great management team of Al Hilal led to success.

Factors that Contributed to Al Hilal’s Success

There were several reasons why Al Hilal became successful despite pessimistic expectations. First of all, the bank was supported by the government in accordance with the Abu Dhabi Economic Vision 2030. Secondly, the bank’s management and founding teams strived to create a standard for corporate governance. Thus, Al Hilal’s codes, systems, and committees were arranged before launching the bank. The services and products that Al Hilal offered were governed by 51 procedure and policy documents and 37 supporting policies. Apart from the basic financial issues, such important points as the code of ethics and whistleblower policy were included in the bank’s documentation.

Another factor that benefited Al Hilal was that it took care of its clients by creating an excellent customer service culture. Finally, the success of the bank became possible due to the managers’ perception of the situation. Al Hilal management team used the crisis as a possibility to develop.

The Challenges Faced by Al Hilal

There were three major problems that Al Hilal had to deal with upon its opening. The first one was related to liquidity. The second issue was the question of loans. The third challenge was the downfalls of capital market.

Liquidity was the biggest problem in the UAE in 2008. The reason for the shortage was the negative rates of real interest that obstructed deposit growth. A high interbank offered rate, along with the apprehension of counterpart default, decreased the interbank market. At the same time, confusion on global capital markets caused a high cost of wholesale funding. As a result, the banks were induced to decrease deposit rates, which hindered loan growth.

The problem of loans was associated with the crash of real estate. Non-performing loans were fueled on default since many emigrants left the country. Downfalls in capital market led to changes in equity as well as profit and loss. As a result, capitalization ratios deteriorated.

The Differences in Governance Structure between Islamic and Traditional Banking

There is a number of features that draws a distinct line between Islamic and traditional banking. The major difference is that Islamic banking system puts customers on the first place. Islamic banks care about people and dedicate their work to making their customers benefit from the cooperation. On the contrary, the main purpose of conventional banking is the question of profit. They care more about themselves than about people who trust them.

The second crucial difference is that Islamic banking incorporates the ethical aspect whereas traditional banks lack this feature. The latter includes the component of interest in their work. The Islamic banks do not involve such a component. Therefore, they do not apply interest rates on mortgages and loans, which makes them much more ethical.

The general divergence between conventional and Islamic banking is that the former is too expensive for the people whereas the latter functions to provide real support to the customers.

The Reasons why Traditional Banks May not Achieve Similar Results as Al Hilal

As mentioned earlier, traditional banking has a serious disadvantage as compared to Al Hilal. Thus, it is highly unlikely that conventional banks will ever achieve the results that Al Hilal has. The major reason is the high-interest rates that traditional banks apply. Customers would rather invest their hard-earned money in a government-owned and supported institution since it suggests attractive rates.

Another factor that makes the chances for success of traditional banks less likely is that they do not work in accordance with Sharia. Meanwhile, Al Hilal conforms to Sharia principles that work for the benefit of people. One of the examples of benefits suggested by Sharia is that interest fees for loans are prohibited. Traditional banks do not provide such opportunities, which decreases their chances for success. Also, Sharia-compliant financial package enables Al Hilal to offer its clients exclusive services that help to stabilize their financial situation. The traditional banking system cannot boast such services, which, again, makes it less attractive.

Additional Notes

The success of Al Hilal is a great example of how perseverance and hard work can lead to beneficial outcomes. Not only the bank itself but also the government and many customers notice many positive changes. Following the Islamic banking system made Al Hilal both more successful and popular with people. A thorough organization of management and other systems made it possible for the bank to survive the crisis and save its positive image. The time when the bank was launched was one of the most difficult times for initiating any financial innovations. However, Al Hilal proved that dedication to its customers, employees, and the government can bring great results. This bank is an inspiring example for those who want to succeed notwithstanding any hardships.

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