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I recently looked at the results of Bank of London and the Middle East plc and of Al Rayan Bank plc.

For my December 2022 column in the magazine "Islamic Finance News" I took a look at the UK's other two Islamic banks, Gatehouse and QIB (UK). Both are considerably smaller than the two larger ones.

I found some interesting differences.

How are the UK’s two smaller Islamic banks doing?

My column “How is the UK Islamic banking scene?” in the 2 June 2021 issue pointed out how the UK’s remaining Islamic banks divided naturally into the “Big 2” (Bank of London and the Middle East “BLME”, and Al Rayan Bank) and the “Little 2”  Gatehouse Bank and QIB (UK)).

At that time, neither of the “Little 2” had published their 2020 accounts, so my column could only refer to their 2019 accounts to assess how they were doing. (All of the UK’s Islamic banks produce accounts to 31 December each year, which is helpful for comparability.)

My 7 September 2022 column included a look at Al Rayan’s 2021 results, and the following month the 5 October 2022 column took a relatively detailed look at BLME’s 2021 results. To close out the set, I want to cover how the “Little 2” performed in both 2020 (when the coronavirus pandemic was at its height) and 2021.

Starting with QIB (UK), in 2019 it had reported assets of £ 676m, equity of £ 67m, and profits of £ 4.4m, giving a return on equity of 6.5%, which in a low interest rate environment is tolerable albeit unexciting.

The key figures for 2020 and 2021 are summarised below:

QIB (UK) should be commended for maintaining its performance during the very difficult year of 2020, and for raising its return on equity to 8.7% in 2021.

Conversely, Gatehouse Bank had reported for 2019 assets of £ 685m, equity of £ 108m, and a loss of £ 3m, with obviously a negative return on equity. I wrote in my column “As this 2019 loss preceded any impact from the pandemic, I am not optimistic about their 2020 results.”

Accordingly, I was surprised when I summarised the 2020 and 2021 results for this column.

Although the 2020 return on equity was only 1.9%, at least Gatehouse avoided making a loss during the pandemic.

Given their similar sizes, the question I have been struggling with is why Gatehouse is doing so much worse than QIB (UK).

Even without access to confidential internal information, a significant amount can normally be gleaned from publicly available information. Obviously the longer one spends, the more reliable the conclusions, but even with a limited amount of time the following caught my eye.

Gatehouse Bank is technically a subsidiary. However, its only parent company is Gatehouse Financial Group. That company has relatively few assets apart from Gatehouse Bank and overlapping directors, and I regard the two companies as essentially the same. Accordingly, Gatehouse does not have a single controlling shareholder.

Conversely QIB (UK) is a wholly owned subsidiary of Qatar Islamic Bank, which presumably keeps a tight grip on its subsidiary. I would expect that to mean QIB (UK) does fewer “exciting” things than Gatehouse. In banking, “exciting” is rarely good!

The same picture arises from reading the accounts. Gatehouse Bank appears to engage in a wider range of activities than QIB (UK), and therefore has more scope for things to go wrong. The QIB (UK) accounts are significantly more boring than the Gatehouse Bank accounts, and in banking “boring” is normally a virtue!

Mohammed Amin is an Islamic finance consultant and former tax partner at PwC in the UK.