MANAMA (Reuters) - The Islamic unit of Bahrain's Arab Banking Corporation ABCB.BH (ABC), one of only two Gulf banks to announce credit-market losses, was not affected by the subprime crisis, the head of the bank's Islamic operations said.
The lender reported a 38 percent fall in 2007 net profit on Sunday on subprime write-downs. A focus on regional business and efforts to ensure products complied with Islamic law helped shield the Islamic banking unit from credit-market losses.
"The Islamic bank has a fantastic year, the underlying trend of Islamic banking businesses within ABC is very good," the head of ABC's Islamic operations Duncan Smith said at the Reuters Islamic Finance Summit.
The Islamic business had not suffered any credit market losses, he said.
The bank's 2007 earnings fell to $125 million from $202 million in 2006. It has yet to give details of fourth quarter profit.
Of the 20 biggest Gulf Arab lenders by market value, only the United Arab Emirates' Abu Dhabi Commercial Bank ADCB.AD has reported any subprime losses, writing down $19 million in the third quarter.
Islamic banks should have shunned collateralized debt obligations linked to subprime, or high risk, mortgages because such complex instruments do not comply with Muslim law, Bahrain's central bank governor Rasheed al-Maraj on Monday.
Islam bans lending on interest and trading of debt. Scholars vet every stage of a transaction to ensure compliance with sharia, or Islamic law, making it unlikely that risks were lurking in the balance sheets of unsuspecting lenders, he said.
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