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ASIA WATCH  March 2010 |
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Banking sector to go Islamic
Going bankrupt? No! IRAN: Bank Melli Iran (BMI) has dismissed rumors that it has been declared bankrupt following a recent decision by the finance and economic affairs ministry to ban daily withdrawals of above IRR150 million (US$15,139). A report quoting BMI’s financial manager said the bank is the largest in Iran and across the Islamic world with assets totaling US$59 billion as of September last year. He added that BMI had no debts to the Central Bank of Iran and did not face any difficulty in fulfilling its obligations at an international level. A rumor had been circulating that two major Iranian banks were on the verge of being declared bankrupt. Net profit up for Nomura JAPAN: Brokerage firm Nomura Holdings posted a net profit of JPY10 billion (US$113 million) for the quarter ended December last year to turn around from the loss of JPY343 billion (US$3.8 billion) in the same period in 2008. The profit was attributed to the purchase of failed US investment bank Lehman Brothers Holdings, which transformed Nomura from its once risk-averse status to a global player in the banking industry. Nomura entered the Islamic financial scene after acquiring Lehman Brothers’ operations in Qatar and Dubai when it went bankrupt in 2008. AmIslamic eyes 30% growth MALAYSIA: AmIslamic Bank is confident of achieving 30% growth in its banking business for the financial year ending the 31st March, said managing director and CEO Mahdi Murad, as the bank had recorded double-digit growth for the past five years. AmIslamic also plans to issue six more products, including wealth management and structured products. It also sees increasing demand for Islamic credit cards. Back on schedule BAHRAIN: Ernst & Young head of Islamic finance Sameer Abdi said the planned Islamic investment megabank will likely be launched within the next six to 12 months. A plan to form the world’s largest Shariah compliant bank, which is being promoted by the chairman of Al Baraka Banking Group Sheikh Saleh Abdulla Kamel, was postponed last year due to the global financial crisis. To date, the proposed institution has about 10 prospective shareholders, including the Islamic Development Bank, Saudi Investment bank and the Kuwait Real Estate Bank. Abdi said regional and international conventional banks would likely play a role in the project. He named Malaysia and Bahrain as possible jurisdictions for the new bank to be located, adding that a third country was also being considered. Going for bonds PAKISTAN: The country plans to sell US$1 billion of Sukuk and Eurobonds this year despite the forecast of a widening budget deficit amid rising war costs, said finance minister Shaukat Tarin. Pakistan will start selling the bonds in July, after taking a two-year hiatus from the capital market. He added that several road shows have been arranged in the next few months to promote the Sukuk and Eurobonds. “A global bond offering from Pakistan may be more feasible in a few months as global economic conditions improve,” said AKD Securities economist Asad Farid. “The risk premium is very high so it’s better for the government to opt for funds from donors rather than the markets.” Cross-border projects MALAYSIA: Asian Finance Bank plans to distribute RM1.5 billion (US$440 million) in funds this year, with 40% of it going towards cross-border deals, especially those involving Malaysia, West Asia and Indonesia, in a move to develop AFB’s branding, said CEO Mohamed Azahari Kamil. AFB currently funds infrastructure as well as oil and gas projects in Indonesia, as the country has a huge potential for the development of Shariah compliant investment instruments. He added that AFB is also working with parties in Malaysia on the development of their projects in West Asia, such as oil exploration and production in Oman. KFH-Malaysia goes retail MALAYSIA: Kuwait Finance House (Malaysia) has announced plans to grow its retail banking business based on its projection that the sector will play a key role. KFH-Malaysia deputy CEO Ab Jabar Ab Rahman said the decision was taken based on the increasing demand for a “back to basics” approach to banking products and services. Currently, KFH-Malaysia’s range of Islamic banking products and services includes deposits and investment accounts, home and personal financing as well as priority banking services. Brunei targeted
Hong Kong Economic and Trade Office director Subrina Chow said the collaboration would also enable Hong Kong to learn more about Islamic finance through its more experienced counterpart. Chow said Hong Kong is especially interested in tapping the Sukuk and Takaful markets, despite having only a small Muslim population. For workers’ benefit INDONESIA: State-owned social security provider Jaminan Sosial Tenaga Kerja (Jamsostek) plans to transform Bank Bukopin Syariah, the Islamic unit of Bank Bukopin, into a Shariah compliant “workers bank”. This will follow the completion of Jamsostek’s acquisition of a 42% stake in the bank in the second half of this year as part of Jamsostek’s plan to expand its services, said the pension fund’s president director, Hotbonar Sinaga. He said the “workers bank,” which would cater to Jamsostek’s 8.4 million members, would provide one-stop services such as social security payments, wealth management and loans. BANGLADESH: Pubali Bank plans to introduce Islamic banking for the first time at its branches in Dhaka and Sylhet Stadium as part of its expansion measures, said managing director Helal Ahmed Chowdhury. Trading the Islamic way AUSTRALIA: Westpac Banking Corporation plans to introduce a Shariah compliant commodity trading facility aimed at overseas investors in a move to boost its exposure to the rapidly growing Islamic finance industry. No further details were available, with a report saying that Westpac’s move coincides with the government’s efforts to promote Islamic financing in the country. Meanwhile, trade minister Simon Crean has launched the Australian Trade Commission’s booklet on opportunities that Shariah compliant banking and investment deliver to the Australia’s financial services sector. Crean said the booklet follows the recommendations of the government-backed Australian Financial Centre Forum for amendments in the tax rules and removal of regulatory barriers to ensure smoother facilitation of Islamic finance products. Waste of precious potential INDONESIA: Despite being touted as “the next growth market” for the Islamic finance industry due to the availability of a huge Muslim population, Indonesia still has a long way to go before it can become a force to be reckoned with, said MIDF Amanah Investment Bank deputy CEO Mohamad Safri Shahul Hamid. He said rapid growth in Indonesia’s Islamic finance industry can be achieved only if the country resolves its tax and legal issues and introduces proper guidelines on Islamic securities. Hamid added that the regulators need to increase their involvement in the industry to open up the market and encourage the introduction of new products. Change for the better
Selling shares UAE: Abu Dhabi Islamic Bank may consider a proposal to allow foreigners to own up to 25% of the bank’s shares in an effort to attract interest from other Middle Eastern countries. “It comes at a difficult time as international investors are busy at home managing their cash flows. However it could do well regionally, attracting interest from Jordan and Egypt,” said Al Dhafra Financial Broker head of investments Vyas Jayabhanu. No further details were provided on the plan. Easing the trade deficit KOREA: The country must embrace Islamic finance to attract Arab investments that will help counter its trade deficit with oil-producing GCC states, Korea Investment and Securities Company (KISC) said. According to the Korea International Trade Association, Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE supplied 68% of Korea’s oil and 53% of its natural gas last year, causing a US$38 billion trade deficit. Korean companies may sell more than US$1 billion of Sukuk and conventional bonds each year in Malaysia if the National Assembly approves the tax benefits, according to Lee Yul Hee, head of the Islamic finance team at KISC. Middle Eastern investors would also buy the notes once they recover from the credit crunch in Dubai, he added. Islamic commodity derivative MALAYSIA: Standard Chartered Bank Saadiq (StanChart Saadiq) plans to launch an Islamic commodity derivative in the first quarter, said CEO Afaq Khan. He said the bank is in advanced discussions with counterparties in the Middle East, including trading companies and government entities. Khan said the product, which took the bank 15 months to create, will be targeted at importers, exporters or distributors who “want to fix” the price of the commodity. Benchmark Sukuk SAUDI ARABIA: Property company Dar Al Arkan Real Estate Development Company’s (Daar) planned Sukuk will set a pricing benchmark for the Gulf region’s non-investment grade issuers, said Dubai-based Moody’s Investors Service analyst Jehad el-Nakla. The Sukuk is the first non-investment grade issue from the Middle East. However, Daar did not specify the date of the issue and the size of the Sukuk. It may be the first international issue from the Middle East since the Dubai financial turmoil. BAHRAIN: International accounting and consulting firm Deloitte Touche Tohmatsu plans to establish its new Islamic Finance Knowledge Centre (IKFC) in Bahrain to capitalize on the rapidly growing Islamic finance industry in the Middle East, said the chairman and chief executive of Deloitte (Middle East), Omar Fahoum. The IFKC is designed to help Deloitte’s clients tap into the Islamic finance field by providing experts who will support the firm’s Middle Eastern audit, tax, consulting, risk and financial advisory employees. The center will be helmed by Hatim Tahir, who has 20 years of experience in the Islamic finance industry. He will be appointed as director. Potential buyers MALAYSIA: Three potential buyers from the Middle East are among six or seven foreign financial institutions seeking to take over the Dubai Group’s 30.5% stake in Bank Islam, according to a report, which identified two of them as Qatar Bank and Saudi Arabia’s National Commercial Bank. The report said that in preparing for the sale, Dubai Group has hired investment bank Rothschild to find potential buyers. Rothschild is undertaking a due diligence study on Bank Islam, it added. The report, which expected any possible sale to occur in the middle of the year, however claimed that Bank Islam would prefer a conventional banking partner from the West that wants to delve into Islamic banking, even though it is not averse to having a strong banking partner with deep pockets from the Middle East. Meanwhile, Shariah compliant Unicorn Investment Bank said it is still keen on taking over the stake but claimed a deal is stalled as shareholders needed to agree on the right partner and price. Unicorn’s head of strategic mergers and acquisitions, Frederick Stonehouse, said: “There is a degree of tension between the existing majority shareholder, who would like the right partner, and the vendor who would like the right price”. Dubai Group said it is shifting its focus closer to home. The other shareholders in Bank Islam are Malaysian government-linked organizations BIMB Holdings and Tabung Haji. Name change MALAYSIA: Labuan Offshore Financial Services Authority, the regulatory body for the Labuan International Business and Financial Centre, has been renamed Labuan Financial Services Authority (Labuan FSA) with the enactment of four new financial laws that aim to boost the competitive edge of Labuan. Labuan FSA director-general Azizan Abdul Rahman said the laws cover all financial activities — from banking insurance, leasing and company incorporation right through to the creation of Islamic financial products and services. The new acts also provide for the creation of foundations, limited liability partnerships, protected cell companies (insurance and mutual funds), shipping operations as well as special trust and financial planning activities. Property fund under stress UAE: Deyaar Development, a Dubai-based regional real estate company, has deferred its AED500 million (US$136.1 million) property fund due to heavy outflows by international investors. It was reported that the delay was caused by the pullout of a Lebanese bank and an international institutional investor, which had committed AED200 million (US$54.4 million) to the fund last October, after Dubai World announced it would seek a standstill on its US$26 billion of debts. Launched last summer, the fund was set up by the emirate’s second-largest developer by market value to purchase distressed properties, including those from its own portfolio. The fund was jointly set up with Dubai Islamic Bank, which owns a 42% stake in the developer. Emaar back on its feet UAE: Real estate developer Emaar Properties has swung back to profit with AED720 million (US$196 million) in fourth quarter profit from a loss of AED2.43 billion (US$662 million) in the same quarter a year earlier as revenue from new shopping centers and hotels offset a slowdown in housing deliveries. Revenue rose 94% to AED2.98 billion (US$540 million). Its full-year profit for 2009 nearly doubled to AED327 million (US$89 million). While Emaar delivered about 3,100 new housing units in 2009, down from 4,900 the previous year, it also opened two high-end hotels in Dubai and benefited from business at the massive Dubai Mall opened Top league plans UAE: Abu Dhabi Islamic Bank (ADIB) aims to achieve double digit growth this year as it expands locally and into Iraq and Egypt to further its aim to be among the top three Shariah compliant banks in the Middle East. ADIB CEO Tirad Mahmoud said this was possible due to the cash that the Abu Dhabi authorities have pumped into the economy, which he said will bring life into the banking system. ADIB has already acquired a license to commence operations in Iraq and will open its doors by June. It is waiting for another for Algeria. Mahmoud said ADIB plans to expand its subsidiary in Egypt, the National Bank of Development, by converting it into an Islamic bank and rebranding it before the end of 2010, given the large market in the nation. As for the UAE, the bank will open 20 branches this year to add to its existing 50. Sukuk to bounce back
According to RAM Ratings Services, a total of RM55 billion (US$16 billion) to RM60 billion (US$17 billion) of gross Sukuk and corporate issues can be expected for this year. In contrast to the generally subdued bond market, the growth of the Sukuk segment remained resilient in 2009 — Sukuk issues made up 68.1% of the total rated private debt securities while actual Sukuk issuance amounted to RM9.6 billion (US$2.8 billion), some 9% higher year-on-year. CBB to tighten rules BAHRAIN: The Central Bank of Bahrain (CBB) plans to introduce stricter limits on banks’ credit and asset exposures. It has not specified the exact date for the introduction of the new law. Banks licensed by the CBB can submit responses to the consultation paper until the 10th March. Under the proposed regulatory changes, CBB will tighten the aggregate limit for Islamic banks, although the limit has not been fixed, while that for conventional banks will be reduced to 25% from the previous 40%. The regulator also wants to introduce tighter limits on banks exposures to directors and associated companies. There will also be a new definition of credit underwriting. The placement of real estate projects and private equity deals with investors has been the main revenue source for many of Bahrain’s investment houses during an oil-fuelled regional property boom that ended 2008. UAE: The Middle East needs a more resilient capital market for the region’s Sukuk industry to thrive, said Morgan Stanley’s senior advisor Yavar Moini. “You desperately need domestic capital market development. “If you look at the strength of the Islamic finance industry, it has really been driven by grassroots demand,” said Moini. He said it could take up to five years for a significant capital market to take root in the region. |
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KUWAIT: Head of the country’s financial and economic committee Barrak Al-Mutair has presented a draft bill to parliament on the Islamization of banking and financial institutions. This would include the Central Bank of Kuwait, government financial portfolios, commercial banks, branches of foreign banks, specialized banks as well as financial, investment and insurance companies. Al-Mutair pointed out that the move is in line with the provisions of the constitution and the Shariah as a basic source of legislation, and will pave the way for the Islamization of Kuwait’s economic system to stop banks, financial institutions and Kuwaitis from charging interest on loans. He added that the bill, if approved, will lead to the exchange of monies on a real commodity basis and set up safe credit exchanges to achieve national development. In addition, it will also protect the national economy from any financial crisis, he contended. 
HONG KONG: Hong Kong plans to boost its economic relationship with Brunei, especially in the field of Islamic finance, given the fact that there is a lot of untapped potential that both countries can explore. 
INDIA: The Jeddah-based Indian Forum for Interest-Free Banking has called on the Indian government to amend the banking regulations to introduce Islamic banking. Its president Omar Abubacker said the Islamic banking system would help reduce production cost as producers would be able to obtain the necessary funding without paying interest. It would also help reduce the prices of products, thus increasing sales which would in turn boost the country’s export volume. 
MALAYSIA: After a dry spell last year, the country’s debt capital market, especially the Sukuk market, is expected to be back on its feet in 2010.