SCA cuts sukuk floor to Dh10m

The UAE’s financial market regulator has set new rules for Islamic and corporate bonds to encourage trading in them, and amended rules on securities lending and borrowing to make it easier for foreign institutions to operate.

The changes are part of plans to introduce at least two new rules covering the stock exchanges every year, in an effort to have the Arab world's second biggest economy upgraded to developed market status in 2018, said Abdullah Salem Al Turifi, chief executive of the Securities and Commodities Authority.

UAE equity markets are expected to see more participation by foreign investors after late May, when international index compiler MSCI will raise the country to emerging market from frontier market status.

"We have a very ambitious plan to be upgraded to developed market within five years. I don't want to be over-optimistic, but this is our target and we are working towards that," Turifi said at a conference on Sunday.

"What is needed is a new set of rules and regulations that are being studied and will be introduced, hopefully two or three every year, including options, futures, depositary receipts, fund administrators, nominee accounts and many others."

The new rules for sukuk spell out standards for their issuance, listing and trading, treating them "as an ownership tool and not a debt one" - a key principle in Islamic finance, which stresses the importance of investors sharing profits and losses.

This is in line with Dubai's drive to develop as an Islamic financial centre, the SCA said in a statement on its website.

The rules ease requirements in some areas; the minimum size of a sukuk listing is now Dh10 million ($2.7 million), down from Dh50 million previously.

But strict requirements are specified in other areas. Sukuk issues must be approved by the Shariah committee of the applicant for listing, or by a Shariah committee accredited by the regulator of the issue. While listed sukuk may be traded outside the market, the trading must follow market procedures.

The new corporate bond rules include a requirement for a joint stock company's general assembly to approve any issuance of bonds.

A change to rules for lending and borrowing securities will facilitate borrowing, the SCA said; if brokerages fail to deliver securities under Delivery versus Payment procedures, they can borrow the securities they need without necessarily having to seek SCA approval. This may reduce the risk of investors' trades not being completed.

The amendment also allows foreign institutions to lend and borrow securities between themselves through direct clearance, which will encourage them to operate in UAE markets, the regulator added.

Turifi said a new framework allowing shares in private joint stock companies to trade on a "second market" of the stock exchanges would be introduced in the third or fourth quarter. It will aim to encourage trade in shares of small and medium-sized enterprises. 

(Emirates News / 30 April 2014)

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UAE: Ethical banking to take over: Abu Dhabi Islamic Bank CEO

UAE: Ethical banking to take over: Abu Dhabi Islamic Bank CEO

The chief executive of Abu Dhabi Islamic Bank (ADIB), the largest Sharia-compliant bank in the United Arab Emirates, believes the banking industry is on the cusp of a historic transformation that will see a convergence between conventional and ethical banking.

"They will come together and they are coming together. Who is doing that to them? The customers on one side, and the regulators on the other side," Tirad Mahmoud told CNBC's "Access: Middle East" in an exclusive interview.

Mahmoud, who argues Islamic banking is only part of a larger move towards ethical banking in the post-crisis world, took over the helm of ADIB in 2008 after a 22-year stint at Citigroup. He says the value proposition of Islamic banks already extends to non-Muslim clients.

Earlier in April, ADIB acquired the retail operations of Barclays in the United Arab Emirates for a price tag of $177 million, giving it access to expatriate customers. The purchase will see 110,000 accounts transferred to Sharia-compliant accounts.

Read More Dubai port operator confident in Europe, UK growth Islamic finance asserts that currency has no intrinsic value and must be directly attributed to an underlying asset. It also prohibits the collection and payment of interest, speculative or derivative instruments, as well as investments in breach of its code of ethics. 

"It's all about ethics and I think that's where the future is going. Can we finance hotels? Yes. Do we finance hotels that sell alcohol and gambling? The answer is no" Mahmoud said.

The global Islamic finance industry is expected to double to $2.6 trillion by 2017, according to a recent report by financial services firm PwC.

Read More Mideast to become world finance center: DIFC chief "We believe it's only a matter of time before it achieves critical mass, as the pool of assets broadens and deepens, and enhances liquidity," Standard & Poor's said in its 2014 Global Islamic Finance Outlook .

It's a niche other banks, including Deutsche Bank, Citi, UBS and Barclays, are tapping into, offering their own Sharia-compliant banking products.

Sovereigns are also following. The Hong Kong government plans to issue up to one billion U.S. dollars' worth of sukuk, or Islamic bonds, in 2014. In October, British Prime Minister David Cameron revealed plans to issue $335 million worth of sukuk.

There is a substantial amount of research emerging about whether Islamic finance offers systemic benefits to the global economy. 

"We have been through the biggest stress test, at the end of 2008. I think we all saw who fell down and who didn't. We do not speculate in derivatives," Mahmoud said.

"Islamic banks by mandate, by doctrine, are tied to the real economy, to real assets."

Sharia-compliance doesn't necessarily make a bank trouble-free, however. In a report on ADIB, Fitch Ratings cited "underlying weak asset quality, exposure to problem financing, sizable loan concentrations and renegotiated loan book, and consequent vulnerability to event risk and potentially high losses." 

Read More Wealthy Islamic banks explore partnerships in the West But the report also noted the "ability and willingness of the UAE federal authorities to support ADIB" if needed due to the lender's "systemic importance."

ADIB has a footing in seven countries including the UAE, and is eyeing Saudi Arabia, Algeria, Turkey, Iraq, Algeria and Iran as strong contenders for future expansion. 

"What we look for is an ecosystem that is good for our business model so a large population base with a large economic base is what retail banks look for. We are predominantly a retail bank," Mahmoud explained. 

Last week, ADIB posted a 20.4 percent increase in first-quarter net profit, driven by higher lending. Its stock is up over 40 percent so far this year, outperforming the benchmark Abu Dhabi Securities Exchange (ADX).

This week on "Access: Middle East": An exclusive interview with Tirad Mahmoud, CEO of Abu Dhabi Islamic Bank (ADIB). Tune in for his take on the interplay between religion and finance, industry trends, and which regions will be driving its growth.

(Access Middle Aest / 30 April 2014)

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UAE Regulator Cuts Minimum Sukuk Size, Eases Securities Borrowing

The United Arab Emirates’ financial market regulator has set new rules for Islamic and corporate bonds to encourage trading in them, and amended rules on securities lending and borrowing to make it easier for foreign institutions to operate.

The changes are part of plans to introduce at least two new rules covering the stock exchanges every year, in an effort to have the Arab world’s second biggest economy upgraded to developed market status in 2018, said Abdullah Salem al-Turifi, chief executive of the Securities and Commodities Authority.

UAE equity markets are expected to see more participation by foreign investors after late May, when international index compiler MSCI will raise the country to emerging market from frontier market status.

“We have a very ambitious plan to be upgraded to developed market within five years. I don’t want to be over-optimistic, but this is our target and we are working towards that,” Turifi said at a conference on Sunday.

“What is needed is a new set of rules and regulations that are being studied and will be introduced, hopefully two or three every year, including options, futures, depositary receipts, fund administrators, nominee accounts and many others.”

The new rules for sukuk spell out standards for their issuance, listing and trading, treating them “as an ownership tool and not a debt one” – a key principle in Islamic finance, which stresses the importance of investors sharing profits and losses.

This is in line with Dubai’s drive to develop as an Islamic financial centre, the SCA said in a statement on its website.

The rules ease requirements in some areas; the minimum size of a sukuk listing is now Dhs10 million ($2.7 million), down from Dhs50 million previously.

But strict requirements are specified in other areas. Sukuk issues must be approved by the sharia committee of the applicant for listing, or by a sharia committee accredited by the regulator of the issue. While listed sukuk may be traded outside the market, the trading must follow market procedures.

The new corporate bond rules include a requirement for a joint stock company’s general assembly to approve any issuance of bonds.

A change to rules for lending and borrowing securities will facilitate borrowing, the SCA said; if brokerages fail to deliver securities under Delivery versus Payment procedures, they can borrow the securities they need without necessarily having to seek SCA approval. This may reduce the risk of investors’ trades not being completed.

The amendment also allows foreign institutions to lend and borrow securities between themselves through direct clearance, which will encourage them to operate in UAE markets, the regulator added.

Turifi said a new framework allowing shares in private joint stock companies to trade on a “second market” of the stock exchanges would be introduced in the third or fourth quarter. It will aim to encourage trade in shares of small and medium-sized enterprises.

(Gulf Times / 28 April 2014)

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Islamic banking coming of age

Islamic banking is now recognised as a mainstream activity not just in Muslim-majority countries but also in global finance, Bangladesh Bank Governor Atiur Rahman said yesterday.

In Bangladesh, Islamic banking constitutes about a fifth of the total banking market, Rahman said.

He spoke at a seminar on shariah banking, organised by the Islamic Banks Consultative Forum (IBCF), a forum of the Islamic banking industry, at Radisson Hotel in Dhaka.

Islamic banking has been gaining ground in the post-global financial crisis period because of its in-built risk sharing, speculation-averseness, value driven features, he said.

The Islamic banking industry is one of the fastest growing sectors of the international financial system, said M Azizul Huq, an Islamic banking consultant.

Deposits with Islamic banks in the country grew by 25.60 percent in the last five years till 2013 as compared to 22 percent for conventional banks, he said during a keynote presentation.

Growth of investment for the same period of conventional banks was 20 percent against 24.60 percent for Islamic banks, he said.  Total deposits of the Islamic banks and windows in December 2013 stood at Tk 1.198 trillion, holding market share of 19.3 percent.

In the mid-1990s, the size of the world Islamic finance assets stood at $150 billion, which has reached $1.80 trillion at the end of 2013, he said.

The value of Islamic finance assets is estimated to reach $6.5 trillion in 2020, Huq said.

Shariah banking is steadily growing in socially responsible financing roles of trade and output activities in the country's economy, including under-served and un-served sectors such as agriculture and micro, small and medium enterprises, Rahman said.

The self-regulation and oversight of its shariah compliance practices are delegated to the shariah-based financing community, he said.

“This has served well thus far in providing a level playing field for shariah-based financing alongside the conventional options.”

“BB acted early on towards introduction of a government Islamic investment bond of six-month tenure to facilitate liquidity management of Islamic banks, introduction of another similar instrument of three-month tenure for further facilitation is at the final stage.”

Currently eight full-fledged Islamic banks and 15 conventional local and foreign banks with 825 Islamic branches and windows are operating in the country with a market share of 22 percent in assets and 19 percent in deposits.  

With the effort of IBCF, the Shariah Board is now successfully functioning in Bangladesh, said Ahmad Mohamed Ali, president of Islamic Development Bank.

The issuance of shariah banking and money market guidelines by the central bank will help achieve further economic growth of the country through influx of additional foreign direct investment and employment generation, Ali said.

(The Daily Times / 29 April 2014)

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Malaysia is prominent destination for Islamic finance

KOTA BARU: Malaysia has consistently become a prominent destination for Islamic finance especially Islamic banking, sukuk market and Islamic equity, said Deputy Prime Minister Tan Sri Muhyiddin Yassin.

He said Malaysia was an Islamic country that has played a big role in taking Islamic finance into the mainstream of the international stage.

"This is acknowledged by the international communities including countries like Sudan, Tunisia, India and Japan," Muhyiddin said in his speech at the closing of the Malaysian Unit Trust Week here today.

Muhyiddin also said efforts to empower Islam wholly and in a planned manner has always been an important agenda of the government since Merdeka (Independence).

He said it was very much visible in all aspects including economy, administration, education, judiciary and others.

The unit trust week was opened on April 20 and has recorded a total of 215,000 visitors.

(New Straits Times / 28 April 2014)

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Egypt Shariah Loans Rise on Record Sugar Deal

Egypt’s biggest Islamic loan, signed yesterday by Al Nouran Sugar, is adding to evidence borrowers are turning to Shariah-compliant funding in a country that ousted its Islamist government less than a year ago.

The company signed a 1.5 billion Egyptian-pound ($215 million) loan to build a factory, according to Al Nouran’s Chief Executive Officer Ashraf Mahmoud. That topped Egyptian Steel’s 1.1 billion-pound facility, which was the North African country’s biggest Islamic loan when it was agreed six months ago, according to data compiled by Bloomberg.

Islamist President Mohamed Mursi was overthrown in an uprising in July, derailing plans for a debut sovereign sukuk sale from the most populous Arab state and stalling the development of its Shariah-compliant financial regime. Borrowers are using Islamic funding options to tap an industry growing at 17 percent a year and set to be valued at $2.7 trillion by 2017, according to PricewaterhouseCoopers.

“The perception of Egypt is changing with political risk coming down,” Montasser Khelifi, senior manager for global markets at Dubai-based Quantum Investment Bank Ltd., said by phone yesterday. “For Egyptian borrowers, it allows them to tap into Gulf Cooperation Council funds since there are some institutions here that only deal in Islamic financing.”

Muslim Majority

Banque Misr, along with the local units of Lebanon’s Bank Audi and Abu Dhabi Islamic Bank (ADIB) were the lead arrangers for Al Nouran’s 8.5 year deal. The loan was priced at 4.25 percent more than the Egyptian “mid-corridor” rate, which is half way between the overnight deposit and lending rates and currently stands at 8.75 percent, Mahmoud said. Egyptian government bonds due April 2022 are yielding about 15 percent, according to data compiled by Bloomberg.

The company also agreed a $30 million mezzanine facility, or debt that’s convertible to equity in case of default, from the Islamic Corporation for Development of the Private Sector, a unit of Jeddah, Saudi Arabia-based Islamic Development Bank, according to Mahmoud.

“We saw that ICD is a AAA rated institution with a firm commitment to invest in Egypt,” Mahmoud said by phone yesterday. “They were the first on board and we had no problem with Islamic financing so it made sense to accommodate them.”

Egypt’s share of the estimated $1.7 trillion in current global Islamic banking assets remains negligible. There are three fully Shariah-compliant banks in Egypt with combined assets of about 80 billion pounds, according to data compiled by Bloomberg, or less than 5 percent of the country’s total banking assets. The country announced a plan to issue Sukuk during the one-year presidency of Mohamed Mursi, before the military seized power.

Thirteen Egypt-based banks took part in Al Nouran’s financing for the plant, which will be built in the Sharkiya province of the Nile Delta and produce 500,000 tons of sugar annually. ICD and Kuwait-based Arab Fund for Economic and Social Development also bought $25 million equity stakes each, Mahmoud said.

“We may be seeing a landmark deal that opens the door for other corporates to consider this kind of financing,” Khelifi said.

(Bloomberg / 28 April 2014)

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Islamic finance body IIFM eyes first sukuk standard

Manama: The Bahrain-based International Islamic Financial Market (IIFM) will develop its first standard contract template for sukuk (Islamic bonds), and aims to double the number of its standards as early as next year, its chief executive said.

A standard for leasing-based sukuk will be developed first by the IIFM, a non-profit industry body which creates specifications for Islamic finance contracts, to help harmonise industry practices, said chief executive Ijlal Ahmad Alvi.

“Our aim is to come up with more standards — that is the focus we are trying to push for. We have five standards now and we hope to double that for next year,” he said.

The move comes after a consultation meeting in Dubai this week which identified a need for guidelines covering the ijara sukuk structure, a sharia-compliant sale and leaseback contract, as a priority.

Alvi said a working group would be established after the IIFM’s board meeting in May, and it would also study other common sukuk structures such as mudaraba, wakala and musharaka, as well as convertible and exchangeable sukuk.

Sukuk issuance globally reached $117 billion (Dh430 billion) last year from a total of 811 issues, of which 175 where based on the ijara structure, according to data from Zawya.

The ijara sukuk standard could be ready by the end of this year at the earliest, although this would depend on the working group’s schedule, Alvi added.

The working group would include representatives from a wide range of Islamic banking institutions including the Jeddah-based Islamic Development Bank (IDB), as well as the International Monetary Fund, he added.

While ijara sukuk are popular among corporate issuers, the absence of standard documentation has spawned different versions which can limit their acceptability among Islamic investors. A general lack of uniformly accepted standards in Islamic finance has slowed global growth of the industry.

The new sukuk standard will seek to address a variety of issues including primary market issuance and the use of special purpose vehicles, Alvi said.

In the past two years, the IIFM has launched standard contract templates for Islamic interbank transactions and profit rate swaps.

It is currently working on standards for cross-currency swaps, foreign exchange forwards and collateralised murabaha, while also consulting on credit support arrangements in Islamic finance contracts, said Alvi.

The IIFM started operations in 2002, founded by the IDB and the central banks and monetary authorities of Bahrain, Brunei, Indonesia, Malaysia and Sudan. Additional members include the State Bank of Pakistan and the Dubai International Financial Centre.

(Gulf News.com / 22 April 2014)

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Zakat Fund, foundation sign MoU

ABU DHABI: The Zakat Fund and the Zayed Bin Sultan Al Nahyan Charitable and Humanitarian Foundation signed a Memorandum of Understanding (MoU) on Sunday.

The MoU aims to achieve a strategic partnership between the two parties through the promotion of mutual cooperation in various humanitarian fields.

The MoU was signed by Abdullah Bin Aqeeda Al Muhairi, Secretary-General of the Zakat Fund, and Ahmed Shabib Al Dhaheri, Director- General of the Zayed Bin Sultan Al Nahyan Charitable and Humanitarian Foundation, at the headquarters of the Fund.

Al Muhairi said that the MoU comes as a practical translation of the principles advocated by the federal government to strengthen cooperation and coordination between the agencies and institutions in the country.

For his part, Al Dhahiri said that this cooperation and coordination came as per the directives of Sheikh Nahyan Bin Zayed Al Nahyan, Chairman of the Board of Trustees of Zayed Bin Sultan Al Nahyan Charitable and Humanitarian Foundation, and Sheikh Omar Bin Zayed Al Nahyan, Deputy Chairman of the Board of Trustees of Zayed Bin Sultan Al Nahyan Charitable and Humanitarian Foundation.

He noted that the signing of the MoU comes in order to achieve the strategic axis of openness and cooperation with other national institutions to achieve a partnership aimed at enhancing the prospects for cooperation and join efforts to advance humanitarian work and gain experience from each side. 

(The Gulf Today / 21 April 2014)

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Baby Boom to Drive Sukuk Sales in Global Hubs

KUALA LUMPUR: Islamic banks are reaping the benefits of a baby boom among Muslim families, encouraging global finance hubs including Hong Kong and the U.K. to focus on serving the Shariah-compliant industry.

Lenders that comply with the religion’s ban on interest will have more than 70 million customers by 2018, from 38 million last year, helping to double Islamic banking assets to $3.4 trillion over the period, Ernst & Young LLP estimates. Underpinning this is a global Muslim population growth rate that will be more than twice the pace of non-believers through 2030, a 2011 report by the Washington-based Pew Research Center shows.

 

“There is strong natural growth expected for Islamic finance as a result of the increase in the bankable population,” Ashar Nazim, a Bahrain-based partner at E&Y’s Global Islamic Banking Center, said in an April 17 e-mail interview. “As demand for capital-market products continues to skyrocket, we will see more international financial centers opening their doors to Shariah platforms and products.”

Hong Kong announced last week that it would sell as much as $1 billion of dollar sukuk after this year’s summer holidays, part of a plan to establish itself as an Islamic finance hub and attract Chinese companies to offer Shariah debt in the city. The U.K. is also planning a debut sale before the end of this financial year, while General Electric Co., which sold sukuk in 2009, said this month it wouldn’t rule out further issuance.

Sukuk Sales

Islamic banking assets have grown by 18 percent annually to $1.7 trillion over the last four years, according to E&Y. International sukuk sales have increased from $16 billion in 2010 to $43 billion last year, data compiled by Bloomberg show. There has been $16.7 billion of issuance so far in 2014, 12 percent more than the year-earlier period.

The growing pool of money looking for a Shariah-compliant home is luring companies from outside the industry’s traditional strongholds in the Middle East and Southeast Asia. Japan’s three-biggest lenders all have licenses to offer Shariah- compliant services in Malaysia and Abu Dhabi Equity Partners said in January it had arranged Brazil’s first Islamic livestock loans, using Middle Eastern money to fatten cattle in South America’s biggest economy.

General Electric Capital Corp., a unit of General Electric, sold $500 million of sukuk in Malaysia in 2009. The offer was part of the company’s funding diversification strategy and it will “consider all options” in meeting future needs, Russell Wilkerson, GE Capital’s Norwalk, Connecticut-based managing director of communications and public affairs, said in an April 8 e-mail.

New Markets

The U.K. is strengthening its ties with the Gulf Cooperation Council before its planned 200 million pound ($336 million) offer, signing a framework this month with Bahrain that sets out plans for a working group on Islamic finance-driven trade and investment. The GCC is comprised of Saudi Arabia, United Arab Emirates, Qatar, Bahrain, Kuwait and Oman.

Two-thirds of the 38 million people who bank in compliance with the religion’s tenets live in Malaysia, Saudi Arabia, Turkey, UAE, Qatar and Indonesia, E&Y estimates. Saudi Arabia and Malaysia will remain the key Islamic financial centers, while India and sub-Saharan Africa are the major potential new banking markets, E&Y’s Nazim said.

Economic growth rates in Muslim-majority countries are contributing to the expansion of Islamic lenders. Gross domestic product in Indonesia, Malaysia and Saudi Arabia will increase this year by 5.4 percent, 5.05 percent and 4.2 percent, respectively, according to Bloomberg surveys. That compares with an International Monetary Fund projection of 2.2 percent expansion in advanced economies.

Products, Services

“There’s a positive correlation between economic growth in Muslim countries and Islamic banking growth,” Hendiarto Yogiono, director at PT Bank Muamalat Indonesia, the nation’s second-largest Shariah-compliant lender, said in an April 23 phone interview in Jakarta. “But the big question remains whether the Islamic banks can compete on products and services.”

Shariah-compliant banks offer a similar range of products as non-Islamic lenders including retail deposits and investment funds. However, they are forbidden from using interest-rate swaps as some scholars have argued these instruments contravene the ban on interest.

The number of Muslims worldwide will grow 1.5 percent a year on average to reach 2.2 billion by 2030, compared with an annual increase of 0.7 percent for non-Muslims, according to the Pew report. Pakistan will see the biggest increase in its Islamic population over the period, followed by India, Bangladesh and Indonesia. There are at least 400 Islamic financial institutions in 58 countries, according to World Bank figures.

Demand Increasing

“Islamic finance has been growing leaps and bounds over the last decade, pretty much centered around Malaysia and the Middle East,” Mohamad Safri Shahul Hamid, the Kuala Lumpur- based deputy chief executive officer at CIMB Islamic Bank Bhd., the top sukuk arranger this year, said in an e-mail interview yesterday. “Globally, the demand for Islamic financial products will increase from retail to commercial to corporate Shariah- compliant offerings.

(Business Times / 23 April 2014)

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Pakistan's MCB drops plans to buy Islamic bank, to set up own unit

Pakistan's MCB Bank Ltd will set up a wholly owned Islamic banking subsidiary while dropping plans to take a stake in Islamic lender Burj Bank, according to a filing with the Karachi stock exchange.

Last month, MCB started due diligence on taking a 55 percent stake in unlisted Burj, which held assets worth 53.3 billion rupees ($547 million) as of December, but it said it would not proceed for commercial reasons.

Those plans would have included an additional investment by the private-sector arm of Jeddah-based Islamic Development Bank , which already holds a 33.9 percent stake in Burj.

Bahrain's Bank Alkhair is its largest shareholder, with a 37.9 percent stake in Burj, which it has classified as held-for-sale since June 2012.

The move comes amid increased activity in Pakistan's Islamic banking sector, with regulators stepping up development efforts and lenders expanding operations in the world's second-most populous Muslim nation.

Burj Bank is the smallest of five full-fledged Islamic banks in Pakistan with a network of 75 branches, while MCB operates the country's sixth-largest Islamic window with 28 branches, which it established in 2003.

MCB had earlier said it would spin off its Islamic window into a separate subsidiary with 10 billion rupees in paid-up capital, using its existing Islamic banking branches to form the new entity.

As of December, Islamic banks held a 9.6 percent share of total banking assets in Pakistan, compared with around 25 percent in the Gulf Arab region.

(Reuters / 22 April 2014)

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Malaysia: RAM Ratings assigns ratings to Public Islamic's RM5b Sukuk

KUALA LUMPUR: RAM Rating Services Bhd has assigned its ratings to Public Islamic Bank Bhd's proposal to issue up to RM5bil Sukuk Murabahah.

It said on Wednesday it had assigned AAA/Stable and AA1/Stable ratings to the senior Sukuk and subordinated Sukuk to be issued under the programme.

It also reaffirmed Public Islamic's AAA/Stable/P1 financial institution ratings.

"The financial institution ratings reflect Public Islamic's strategic importance as the Islamic banking arm of its parent, Public Bank Bhd (the group, rated AAA/Stable/P1 by RAM)," it said.

RAM Ratings pointed out the bank's operations were highly integrated with those of its parent, leveraging on the latter's risk-management systems, branch network, back-room operations and IT infrastructure.

We believe that the group will readily extend support to Public Islamic should the need arise," it said.

The ratings agency said based on the group's prudent credit culture, Public Islamic's asset quality remains robust.

"Although we have observed some loan-quality slippage in its vehicle-financing portfolio, any further deterioration should be contained given the bank's proactive credit-tightening measures back in 2011," it said.

As at end-December 2013, Public Islamic's capitalisation was sound relative to its risk profile, with a common-equity tier-1 capital ratio of 11.7%.

The subordinated Sukuk is Basel III-compliant and will be treated as tier-2 regulatory capital. The subordinated Sukuk has a non-viability loss-absorption feature linked to the occurrence of a non-viability event.

"In line with RAM's rating approach for Basel III tier-2 securities, the subordinated Sukuk is rated 1 notch below Public Islamic's long-term financial institution rating, underlining the lower ranking of these sukuk in the priority of claims upon bankruptcy or liquidation, relative to the Bank's senior unsecured creditors," it said.

(The Star Online / 23 April 2014)

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Islamic Finance Body IIFM Eyes First Sukuk Standard

The Bahrain-based International Islamic Financial Market (IIFM) will develop its first standard contract template for Islamic bonds, and aims to double the number of its standards as early as next year, its chief executive told Reuters.

A standard for leasing-based sukuk will be developed first by the IIFM, a non-profit industry body which creates specifications for Islamic finance contracts, to help harmonize industry practices, said chief executive Ijlal Ahmed Alvi.

“Our aim is to come up with more standards — that is the focus we are trying to push for. We have five standards now and we hope to double that for next year.”

The move comes after a consultation meeting in Dubai this week which identified a need for guidelines covering theijara sukuk structure, a Shariah-compliant sale and lease-back contract, as a priority.

Alvi said a working group would be established after the IIFM’s board meeting in May, and it would also study other common sukuk structures such as mudaraba, wakala and musharaka, as well as convertible and exchangeable sukuk.

Sukuk issuance globally reached $117 billion last year from a total of 811 issues, of which 175 where based on the ijara structure, according to data from Zawya, a Thomson Reuters company.

The ijara sukuk standard could be ready by the end of this year at the earliest, although this would depend on the working group’s schedule, Alvi added.

The working group would include representatives from a wide range of Islamic banking institutions including the Jeddah-based Islamic Development Bank (IDB), as well as the International Monetary Fund, he added.

While ijara sukuk are popular among corporate issuers, the absence of standard documentation has spawned different versions which can limit their acceptability among Islamic investors. A general lack of uniformly accepted standards in Islamic finance has slowed global growth of the industry.

The new sukuk standard will seek to address a variety of issues including primary market issuance and the use of special purpose vehicles, Alvi said.

In the past two years, the IIFM has launched standard contract templates for Islamic interbank transactions and profit rate swaps.

It is currently working on standards for cross-currency swaps, foreign exchange forwards and collateralized murabaha, while also consulting on credit support arrangements in Islamic finance contracts, said Alvi.

The IIFM started operations in 2002, founded by the IDB and the central banks and monetary authorities of Bahrain, Brunei, Indonesia, Malaysia and Sudan. Additional members include the State Bank of Pakistan and the Dubai International Financial Center.

(Jakarta Globe / 23 April 2014)

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Sukuk market dominated by local issuers

Dubai:Sukuk markets across the world operates as a collection of local markets as truly global issuance are relatively low according to data from Standard & Poor’s (S&P).

Over the past 10 years, local sukuk issuance in Malaysia and the countries in the Gulf Cooperation Council (GCC) region have helped fuel impressive growth in domestic sukuk issuance.

But out of the $117 billion in sukuk issued in 2013, only 16 per cent was truly international — that is, listed on major exchanges and generally issued in hard currencies.

“Most international issuances to date have originated in Malaysia or the GCC. Since 2001, S&P has seen only about 20 international sukuk from issuers domiciled outside these countries, for a total amount of around $10 billion,” said Mohammad Damak, an analyst with S&P.

Most international sukuk are listed on one or more of the international exchanges such as Irish Stock Exchange, Nasdaq Dubai, Singapore Stock Exchange, Bursa Malaysia, London Stock Exchange. If a sukuk is listed on a local/regional stock exchange, Standard & Poor’s Ratings Services classifies it as international if it is issued in foreign currency.

More than 40 per cent of worldwide issuance in 2013 was short-term sukuk issued in ringgit by just one issuer — the Central Bank of Malaysia. Most international issuances to date have originated from Malaysia or the GCC.

Despite the relatively low number of international sukuk issues interest from issuers outside these traditional markets has increased, chiefly because Sharia-compliance attracts deep-pocketed Middle Eastern and Asian investors.

“We understand that about half of sukuk investors invest in such instruments for religious reasons. We also estimate that about 60 per cent of investors in sukuk issued by entities domiciled outside the GCC and Malaysia were from the Middle East and Asia,” Damak said.

Data shows that in the case of sukuk issues from entities domiciled outside the GCC and Malaysia, a high proportion of investors for such international sukuk came from the Middle East and Asia. Of these investors 36 per cent were from the Middle East and 22 per cent from Asia. The remaining investors were mainly from Europe (16.8 per cent) or the US (12.3 per cent).

Sukuk are generally more expensive to issue than conventional bonds because they are priced at a premium. However, this premium does not seem to have acted as a serious brake on market development. In addition, the costs attached to structuring sukuk seem to us to be of secondary importance to large issuers.

We understand that a few issuers, particularly in the corporate or project finance space in the Gulf, have recently raised sukuk at a cost below that required to issue comparable conventional bonds. In our view, the reduced cost was underpinned by very strong demand for sukuk in a region where the amount issued remains small.

Yields on sukuk and conventional bonds with similar characteristics remain very strongly correlated, as shown by the synchronised moves of the yields on S&P Dow Jones Mena bonds and sukuk indices.

(Gulf News.Com / 20 April 2014)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

BSP in talks with Malaysia counterpart to craft Islamic banking framework for Philippines

Malaysia, home to the one of the world’s largest Muslim populations, has expressed interest in helping develop the Islamic banking industry in the Philippines, the Department of Finance said Sunday.

Finance Undersecretary Jose Emmanuel Reverente said the Bangko Sentral ng Pilipinas has been holding talks with Bank Negara, Malaysia’s central bank, regarding the creation of a framework for Islamic banking in the country.

"There has been strong interest from Malaysia in terms of assisting us develop a strong Islamic banking framework… We are working closely with them," he said.

In a forum held last March, BSP Governor Amando Tetangco Jr. lamented the scarcity of Islamic banks in the Philippines, particularly in the Autonomous Region in Muslim Mindanao (ARMM), despite the vast business opportunities available in the region.

At present, only 20 banks operate across five provinces in ARMM, with Al-Amanah bank being the only Islamic financial institution. The bank is a subsidiary of the Development Bank of the Philippines.

Malaysia, meanwhile, has 16 Islamic banks.

Reverente said the growth of Islamic banking industry in the Philippines has been stunted by the absence of a framework to guide the creation of laws that recognize the particular manner by which Muslims transact and do business.

Under traditional Islamic banking, loans to clients or customers must not carry interests. Because of this condition, Islamic banks in the Philippines serve more as an equity partner than a deposit-taking and lending institution, Reverente said.

This, in turn, puts the banks at a disadvantage when it comes to fulfilling tax obligations, he said.

The government earlier said it hopes to develop a market for the Islamic banking industry in preparation for the ASEAN economic integration in 2015.

(GMA News Online / 20 April 2014)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Kazakhstan and Bahrain to promote Islamic banking in Kazakhstan

Kazakhstan and Bahrain will be working to promote Islamic banking in Kazakhstan, Tengrinews.kz reports, citing President Nazarbayev’s official website.

“The two sides have expressed their intention to promote Islamic banking in Kazakhstan. We are interested in Bahrain’s practices in this realm as the country is a major center of Islamic finances”, President Nazarbayev said following his talks with King of Bahrain Sheikh Hamad bin Isa bin Salman Al-Khalifa in Astana April 14.

The two sides condemned terrorism and extremism in all its manifestations, called to strengthen measures to counteract transnational and organized crime, illicit turnover of narcotic drugs and weapons, as well as to counteract other types of crimes posing threats to the global peace and stability.

Kazakhstan and Bahrain have agreed to place a priority emphasis on cooperation in investments, trade, agriculture, banking, and to further ties in education, culture and science. They have agreed to encourage interaction between universities and culture entities and facilitate exchange of students.

For more information see:http://en.tengrinews.kz/politics_sub/Kazakhstan-and-Bahrain-to-promote-Islamic-banking-in-Kazakhstan-252934/

Use of the Tengrinews English materials must be accompanied by a hyperlink to en.Tengrinews.kz

(Tengkri News / 15 April 2014)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com