DUBAI: Islamic banks and financial institutions are not isolated from a global credit crisis, which is plaguing conventional lenders, although they have been barely bruised so far, bankers said.

But falling property and commodity prices and slowing economies are starting to affect the sector.

"The problem is these physical assets, be it commodities, be it equities, stock markets, stocks, be it real estate, their prices were affected and this is where Islamic finance is affected," Henry Azzam, chief executive for Middle East and North Africa at Deutsche Bank, told the Reuters Middle East Investment Summit.

Falling prices in mainly Muslim countries in the Middle East and Southeast Asia are likely to affect the Islamic finance market due to heavy reliance on such assets to support deals.

Stock markets across the Gulf Arab region have plunged over the last few weeks, as bourses have tracked global markets lower, with Dubai down more than 50 per cent so far this year and Saudi Arabia down more than 45pc.

"For me, we heard many people saying that if you are an Islamic bank you will not be affected," said Amani Bouresli, professor of finance at Kuwait University. "I don't think it is a matter of conventional or Islamic, I think it is a matter of management."

Bond sales have almost dried up in the second half of this year as the global credit squeeze has raised borrowing costs, prompting many Gulf borrowers to shelve sukuk sales as banks become more reluctant to lend.