Wednesday, 29 April 2015

Kuveyt Turk sells debut ringgit sukuk, applies for 1 bln lira deal

Turkish participation bank Kuveyt Turk has sold a debut deal of ringgit-denominated sukuk, or Islamic bonds, and has applied for a new 1 billion lira ($376 million) deal, as the lender looks to secure lower-cost financing.
Kuveyt Turk, 62 percent owned by Kuwait Finance House , would sell the lira-denominated deal to qualified investors via its asset-leasing company, KT Kira Sertifikalari Varlik Kiralama, according to Turkey's Capital Markets Board.
In a separate statement, the bank said it had raised 300 million ringgit via a five-year sukuk, its first issuance under a 2 billion ringgit programme.
The ringgit sukuk pays an annual yield of 5.8 percent, with the proceeds swapped into dollars to reduce the bank's funding costs to 4.4 percent, the statement said.
This marks the lender's first foray into the Malaysian Islamic debt capital market, which has attracted a range of foreign issuers thanks to an accommodative tax regime and strong demand from local investors for ringgit-deonominated paper.

In July, Turkiye Finans became the first Turkish lender to issue ringgit-denominated sukuk in Malaysia when it raised 800 million ringgit from a 3 billion ringgit programme it set up in June.
(Reuters / 28 April 2015)
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Islamic finance body IFSB launches industry indicators

The Islamic Financial Services Board (IFSB) has launched a databank of industry indicators covering 15 member countries, helping shed new light on the size and shape of the sharia-compliant banking sector.
The Kuala Lumpur-based IFSB, one of the main standard-setting bodies for Islamic finance, is supporting a range of initiatives to improve supervision of the sector as it achieves greater prominence in several Muslim-majority countries.
The 188-member IFSB added financial inclusion to the industry's agenda this month and released final guidance on liquidity management for Islamic banks.
The IFSB collected data directly from regulatory bodies and plans to update figures on a quarterly basis, while adding more countries and sectors, it said in a statement.
For the initial 15 countries, a total of 207 Islamic banking institutions were identified, which held a combined $1.18 trillion in assets and had 10,711 branches as of 2013.
Country-specific data also provides a rare insight into Islamic banking practices in Saudi Arabia and Afghanistan, where official figures are hard to come by.
At the end of 2013, Saudi Arabia had 4 full-fledged Islamic banks and 8 Islamic windows, units of conventional banks that offer sharia-compliant financial services.
Islamic lenders in the kingdom rely heavily on murabaha, a cost-plus mode of financing, which represents 62.4 percent of total financing for full-fledged Islamic banks and 86.7 percent for Islamic windows.
In contrast, Afghanistan had 6 Islamic windows and no full-fledged Islamic banks, relying on a profit-sharing contract known as musharaka for 53.3 percent of total financing.
The data also covers Bahrain, Bangladesh, Brunei, Egypt, Indonesia, Jordan, Kuwait, Malaysia, Nigeria, Oman, Pakistan, Sudan, and Turkey.

The IFSB indicators are being developed with technical assistance from the Asian Development Bank and the Islamic Development Bank. 
(Reuters / 27 April 2015)
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Tuesday, 28 April 2015

Saudi Arabia largest Islamic banking market in the world


The Islamic banking industry in the Kingdom of Saudi Arabia (KSA) is set to achieve $683 billion of Shariah-compliant assets by 2019, according to EY’s World Islamic Banking Competitiveness report. 

KSA has been a key market for growth in the Islamic banking industry. The first Islamic bank with equity in excess of $10 billion is headquartered in KSA. A strong demand from customers, both retail and corporate, has led to significant growth in Islamic banking in KSA resulting in 54% of all financing being Shariah-compliant in 2013. Overall, the size of Islamic banking assets in KSA has nearly doubled from 2009-2013.

Ashar Nazim, Global Islamic Finance Leader at EY, said: “The Islamic banking industry is preparing to go mainstream globally. KSA is the largest Islamic banking market in the world, representing 31.7% of the global market share. The country has been a pioneer in the Islamic banking industry and we expect it to continue being a driving market for the industry, as Malaysia, Turkey and Indonesia also establish themselves as populous Islamic banking centers.”

Branch experience got the highest in terms of customer satisfaction, the EY report noted.

In the study, EY monitored 567,071 Islamic banking customer sentiments in KSA on social media as part of a wider study, which looked at 2.2 million customer sentiments dispersed across various online sources in nine key markets (KSA, Bahrain, Kuwait, the UAE, Malaysia, Indonesia, Turkey, Qatar and Oman).

Out of the sentiments analyzed in KSA, one in three of the positive sentiments were about branch experience, indicating that customers were generally satisfied in this area of service.

“The experience however varies by banks and types of customers. The younger customers are openly challenging the status quo and asking for more digital solutions,” said Muzammil Kasbati, Director, Global Islamic Banking Center of Excellence, EY.

While online and mobile banking services has taken off well in Saudi Arabia, its sustainability remains a cause of concern, the report noted. 

“The retail banking proposition of several banks was found struggling between the legacy people culture and the tech-savvy business model required to win new customers. Islamic retail proposition of conventional and Islamic banks still appears to be operating in silos, which unfortunately hampers their customer satisfaction ratings,” said Muzammil.

“Saudi retail banking customers like the fact that some banks are investing to improve the branch experience. There appears to be a healthy take-up of digital banking on offer, and there is anticipation for more. Islamic banks will need to increasingly shift their expenditure from running the bank to developing the bank. Learning from the customer’s journey can provide very important insight that can be applied in everyday operations. Digital adaptation will be vital when upgrading services,” Ashar noted. 



(Albawaba Business / 27 April 2015)
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Innovation to the fore in year of firsts for Asian Islamic finance

The headlines went to sovereign sukuk, most obviously Hong Kong. On September 18, the government of Hong Kong SAR launched a $1bn 144a/Reg S five year sukuk. Keenly awaited, the sukuk followed the legislative changes made in Hong Kong in July 2013 that created a level taxation framework between conventional bonds and sukuk, seen as a vital starting point for any Islamic capital market. 
The deal, the first ever by a AAA government and the first from East Asia, was not really about the money — Hong Kong has plenty of ways it can raise sovereign debt. But in a similar way to the UK’s debut issue in June 2014, it was to make a point, sending out a message that Hong Kong was serious about becoming a marketplace for Islamic finance.
It also created quite some benchmark for others to price against. At 23bp over five year Treasuries, Hong Kong's deal was the tightest spread ever achieved on a benchmark dollar bond from an Asian ex-Japan government. Notably, less than half the deal went to Asia, as global demand created a $4.5bn order book.
While Pakistan was not a debut issuer when it launched its $1bn sukuk in November, it was the first sukuk from the country since 2005, and a difficult sell given its economic and political challenges. After attracting $2.3bn in demand, the deal was doubled in size from a planned $500m, and priced 50bp inside its conventional curve.
Again, it’s interesting to see where a bond like this goes: not to Asia, which took just 6% of the paper, but mainly the Middle East (53%) and the UK (24%). Even US investors, whose relationship with Pakistan can be fractious, bought 12% of the deal.
Indonesia’s $1.5bn 10 year global sovereign sukuk, launched a week before Hong Kong’s, was not the first from Indonesia, but it did have significance nonetheless. For a start, it created the largest order book ever from an Asian sukuk, at $10.2bn; it was also the first single tranche 10 year sukuk from an Asian sovereign.
But its lasting impact is likely to be a more subtle point: the fact that it used a new structure for a sovereign sukuk, wakala, rather than the usual methods of ijara assets and murabaha receivables. This allowed Indonesia to underpin the sukuk with government-owned properties leased to the Republic, and project assets, including assets under development.
As always, Malaysia was the home of the greatest innovation, in the sukuk markets and elsewhere. Khazanah, the state asset holding company, has been a regular fixture with exchangeable sukuk into its various underlying holdings, and in September it launched its latest, a seven year put four $500m exchangeable into Tenaga Nasional.
Again, there was structural ingenuity here: this was the first such structure to be based on mudaraba and murabaha, and was also the first such instrument to price at a negative yield. But it was unquestionably aggressive — an earlier version of the deal had been pulled three months earlier, and some in the market felt the final trade still pushed too hard.
Only 20% of it sold into Asia, with 80% going to European investors, giving a further example of how the marketing of Islamic transactions has evolved over time.
The inaugural sukuk from Export-Import Bank of Malaysia (Exim Bank), a $1bn multi-currency programme, was a landmark of sorts, being only the second export-import bank sukuk globally and the first in dollars. Like the Indonesia deal, this one used the wakala model, underpinned by leasable assets, shariah-compliant shares and a murabaha receivables component based on commodities. The proceeds will fund Exim Bank’s Islamic banking business.
Perhaps more significant still was Malaysia Airports Holdings’ MR1bn perpetual non call 10 sukuk launched in December. It was the first rated deal of its type anywhere in the world, a rating that came about by structuring the deal to achieve a 50% equity credit from the rating agencies.
CIMB saw the success of the deal as testament to the increasing depth and maturity of the Malaysian fixed income markets, with investors beginning to be more receptive towards structured finance transactions.
A couple of weeks after Malaysian Airports there was a similar deal, a perpetual subordinated sukuk musharaka from DRB-Hicom, rated single A. Bankers highlighted the positive investor response to the subordinated perp, despite being in a rating category where many investors have investment restrictions even in senior papers, let alone in subordinated. The deal raised MR715m through two perpetual tranches, one a non-call five, the other a non-call seven.
Bank capital always spurs innovation, and a MR3bn subordinated sukuk murabaha programme for AmIslamic Bank in February 2014 brought Malaysia’s first Basel III-compliant subordinated sukuk. It proved to be an influential deal: in the following months Maybank Islamic Bank, RHB Islamic Bank, Public Islamic Bank, Hong Leong Islamic Bank and Bank Islam all followed with similar deals.
One of Malaysia’s singular achievements is making itself a hub not only for sukuk in ringgit but in other currencies too. This was illustrated in yet another September deal, a $500m multicurrency sukuk wakala programme from Bank of Tokyo-Mitsubishi UFJ (Malaysia), which included a yen tranche, the first ever yen denominated sukuk in the global market.
Another significant deal was a MR3bn IMTN and ICP programme for a real estate investment trust, KLCC, and the Sabah Credit Corporation brought a distinctive musharaka structure when it launched a MR750m ICP and MR1.5bn IMTN programme.
(Global Capital Asia Money / 24 April 2015)
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Monday, 27 April 2015

SUKUK PIPELINE - Issue plans around the world

The Thomson Reuters Global Sukuk Index is at 118.66237 points, up from 117.52672 at the end of last month and 115.79726 at the end of last year. The Thomson Reuters Investment Grade Sukuk Index is at 117.64818 against 116.23259 at end-March and 113.69014 at end-2014.
KUVEYT TURK - Kuveyt Turk, Kuwait Finance House's Turkish unit, said in late April it would apply to the Capital Markets Board for permission to issue up to 1 billion lira ($370 million) of sukuk.
IVORY COAST - The Islamic Corporation for the Development of the Private Sector, an arm of the Jeddah-based Islamic Development Bank, said in late April it would lead manage a 300 billion CFA franc ($480 million) Islamic bond programme for Ivory Coast.
KHAZANAH NASIONAL - Malaysia's Khazanah Nasional plans the first tranche of a 1 billion ringgit ($276 million) sukuk issue as early as May, the sovereign wealth fund's managing director said in late April.
KUALA LUMPUR KEPONG - Malaysian plantation company Kuala Lumpur Kepong will raise up to 1.6 billion ringgit from Islamic bonds, rating agency RAM Ratings said in mid-April.
MALAYSIA BUILDING SOCIETY - Malaysia Building Society plans its third issue of covered sukuk worth 900 million ringgit, according to a regulatory filing by RAM Ratings in mid-April.
BNI SYARIAH - PT Bank BNI Syariah, the Islamic subsidiary of state lender PT Bank Negara Indonesia, plans to issue sukuk mudaraba with a three-year tenor worth up to 750 billion rupiah ($58.3 million) in an offer on May 18 and 19, the Jakarta Post quoted CEO Dinno Indiano as saying in mid-April.
JORDAN - Jordan chose the Islamic Corporation for the Development of the Private Sector to support its debut sovereign issue of sukuk, the ICD said in mid-April; the dinar-denominated issue is expected this year and would be used to absorb excess liquidity held by Jordan's Islamic banks, which is estimated to total 1.4 billion dinars ($2 billion).
AXIS REIT - Malaysia's Axis REIT said in early April that it had expanded its sukuk programme to 3.0 billion ringgit from 300 million ringgit, and extended the length to perpetual from 15 years.
TALIWORKS - Malaysia's Taliworks Corp announced in early April that the Securities Commission had authorised its proposed issuance of 210 million ringgit worth of sukuk murabaha, Bernama news agency reported.
KAZAKHSTAN - Kazakhstan's Finance Ministry is expected soon to propose a draft law allowing its first sovereign sukuk issue, which will probably take place early next year, Yerlan Baidaulet, an adviser to the Investments and Development Ministry, told Reuters in early April.
SENEGAL - Senegalese President Macky Sall said in early April that he had asked the Islamic Development Bank to help his country conduct a second sovereign sukuk issue. He gave no details.
GARUDA - Indonesian flag carrier Garuda Indonesia plans to issue $500 million worth of sukuk in May to refinance $350 million in loans maturing in June, the Investor Daily reported in late March, quoting Garuda's finance director I Gusti Ngurah Askhara Danadiputra.
(Yahoo News / 27 April 2015)
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Aafaq Islamic Finance approves cash dividend of 30%

Aafaq Islamic Finance said on Sunday it has approved a cash dividend of 30 per cent during even as its net profit grew 101 per cent in 2014.
Aafaq registered an unprecedented net profit increase of 101 per cent to reach Dh85.25 million last year from Dh42.43 million in 2013, it said in a statement.
The company’s 2014 revenues also climbed by 75 per cent to Dh103.765 million compared with 2013’s Dh59.302 million.
During the same period, aafaq’s liquid assets jumped by 55 per cent to reach Dh1.325 billion from Dh857 million, while total assets increased by an average of 37 per cent to Dh2.191 billion from 2013’s Dh1.594 billion. Additionally, property rights surged by 18 per cent to reach Dh325 million from Dh275 million in 2013.
The company’s total assets and revenues has been rising over the past few years but 2014 was one of the best years by all accounts.
The company’s total assets and revenues achieved growth rates of 37 per cent and 75 per cent, respectively, last year compared with 23 per cent and 72 per cent recorded between 2010 and 2013. Effective resource investments in high-yielding assets led to these positive results.
(Gulf News Market / 26 April 2015)
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Saturday, 25 April 2015

RAM assigns AAA(s) rating to SRI sukuk programme

Khazanah Nasional Bhd is launching a RM1 billion sukuk ihsan programme, the country's first sustainable responsible investment (SRI) sukuk.
"Sponsored by Khazanah, the sukuk ihsan is the first SRI sukuk to be approved under the Securities Commissions' revised sukuk guidelines (issued in August 2014). To our knowledge, it is also the first social-impact bond (SIB) to be rated globally," said RAM Ratings in a statement yesterday.
The SRI sukuk will be issued by Ihsan Sukuk Bhd, a trust-owned company established for the sole purpose of raising capital to support the corporate and social responsibility efforts of Khazanah - the promoter of this exercise.
RAM Ratings has assigned an AAA(s)/stable preliminary rating to the RM1 billion sukuk ihsan programme.
As the issuer, Ihsan will raise funds under the Islamic principle of Wakalah Bi Al-Istithmar and/or other Islamic principles to be determined.
The initial issue of sukuk ihsan will be based on the Islamic principle of Wakalah, where proceeds will be used to purchase eligible sukuk investments while, Khazanah will, in turn, use the proceeds to fund syariah-compliant eligible SRI projects.
"Although the global SRI market is still nascent, we see tremendous growth potential given Malaysia's leadership in the global Islamic finance market as well as the increasing global and domestic demand for greater governance and ethical investment. In Malaysia, for instance, we see this in the various government initiatives to develop green energy," RAM Ratings CEO Foo Su Yin said.
In assessing the credit risks associated with sukuk ihsan, RAM had considered Khazanah's role as the sukuk holders' counter-party in the transaction structure.
Khazanah will invest the proceeds in either syariah-compliant tangible assets or syariah-compliant commodities purchased and sold under the principle of Murabahah (Commodity Murabahah Investment), with at least 33% of the sukuk proceeds invested in tangible assets.
"The AAA(s) rating is supported by Khazanah's role as the obligor under the purchase undertaking to buy the sukuk holders' interests in sukuk investments, as well as its commitment to make deferred payments pursuant to the Commodity Murabahah Investment in order to fully meet the obligations under the sukuk programme," he added.
Foo said that Khazanah's SRI sukuk will encourage greater private participation in sustainable and social-impact investments, and may even encourage new participants in the domestic sukuk market.
"Expanding and developing this segment is not without its challenges. As a start, however, we believe that Malaysia is on the right track towards creating a vibrant and possibly sizeable SRI sukuk market," Foo added.
(The Sun Daily / 24 April 2015)
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First Islamic bank in Germany to open in July

Germany is to get its first fully operational Islamic bank on July 1. Opened by the Turkish finance group Kuveyt Turk it will provide Sharia compliant banking services.
“This new achievement will open vast areas of business and investment in Europe’s largest economies, as this is the first bank to obtain a full function license to take deposits and offer credit finance facilities in Germany as per Islamic rules and regulations,” Kuwait Finance House said in a statement on Thursday.
The wholly-owned subsidiary of the Turkish lender will be called KT Bank AG with its headquarters based in Frankfurt and branches in Cologne and Berlin. It will serve Germany’s 4 million Muslims but also plans to expand its services throughout Europe.
"Our market research has shown, that 21 percent of Muslims in this country would see an Islamic bank as their natural household bank," Kuveyt Turk’s managing director Kemal Ozan was cited as saying by Deutsche Welle.
The bank will operate under the principles of Islamic Sharia law, under which it can’t participate in speculative ventures or investments, can’t charge interest on loans, based on the Islamic teaching that a Muslim may not benefit from lending money or receiving money from someone else. Islamic banks, however, may still purchase assets and resell them for a profit. Sharia law also forbids investment in industries like gambling, alcohol or pornography. Islamic banks tend to stay away from companies with debts amounting to more than 30 percent of their value.
Islamic banking is growing faster in Britain and France than in many Islamic countries in the Middle East and Asia. Britain remains Europe's main Islamic finance hub with its five Islamic banks. Luxembourg is also planning to launch an Islamic lender of its own. The Islamic Bank of Britain reported a 55 percent rise in applications for its savings accounts by non-Muslims in 2014 after the Barclays rate-fixing scandal.
Britain became the first non-Muslim country to begin trading in sukuks that are the Islamic equivalent of bonds. Hong Kong, Luxembourg and South Africa have also issued sukuks.
In 2010 Kuveyt Turk, the largest Islamic bank in Turkey, which is 62 percent owned by Kuwait Finance House, set up a branch in the southwestern German city Mannheim, but was not fully operational. In 2012 it applied for a full banking license, and plans invest $48.7 million in the planned German unit.
(RT / 24 April 2015)
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Thursday, 23 April 2015

Malaysia: Bank Islam issues first sukuk tranche totalling RM300mil

KUALA LUMPUR: Bank Islam Malaysia Bhd has issued the first tranche amounting to RM300mil under its subordinated sukuk murabahah programme of up to RM1bil in nominal value.

BIMB Holdings Bhd (BHB) told Bursa Malaysia that the tranche, issued on Wednesday, would have a 10-year tenure and could only be redeemed after five years.

RAM Rating Services has given the sukuk an A1/stable rating.

BHB had in October announced that its unit Bank Islam had obtained approvals from Bank Negara and the Securities Commission to establish the subordinated sukuk murabahah programme.

Under the programme, Bank Islam is given the flexibility to issue subordinated sukuk murabahah during the availability period therein based on the capital requirements of Bank Islam.

The programme has a tenure of up to 30 years from the date of the first issuance of the subordinated sukuk murabahah.

Each tranche of the subordinated sukuk murabahah to be issued is required to have a tenure of not less than five years and up to 30 years from the issue date provided that the subordinated sukuk murabahah mature on or prior to the expiry of the tenure of the programme.

(The Star Online / 22 April 2015)
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Oman's Al Yusr Islamic Banking meeting focuses on new policy, products


Muscat: Al Yusr Islamic Banking from Oman Arab Bank (OAB), recently held its first Supervisory Board meeting of the year.

The meeting held at the Corporate Office of Al Yusr in Al Ghubra, was attended by Dr Essam AlEnezi; Chairman of the Al Yusr Shari'a Supervisory Board and Dr AbdulAziz AlQasaar; member of the Board and other senior managers of Al Yusr.

The Sharia Supervisory Board approved several Al Yusr retail and corporate banking products and policy which are carefully developed keeping in mind the unique individual and business needs of the customers in Oman.

One of the key product approved during the Shari'a Board meeting is the Al Yusr Ladies Saving Account, giving special privileges and benefits to the account holders.

Abdul Qader Shir Al Bulushi; General Manager Al Yusr Islamic Banking mentioned that the first Shari'a Supervisory Board's meeting for 2015 recently held, was successful and the approval of new products will play a pivotal role in introducing innovative and value added products and services to meet the unique needs of Al Yusr customers. 

In the meeting, Dr AlEnezi also welcomed AlYusr new Internal Sharia Reviewer, Dr Muhammad Iman Sastra Mihajat, a Sharia expert from Indonesia. Dr Muhammad Iman will ensure that the products and services offered by Al Yusr are in accordance to the Sharia principles. 

He will also focus on training Al Yusr staff to enhance the understanding of its staff about Islamic banking practices.

Al Yusr will continue to facilitate more in-depth trainings to ensure that each employee can grow within Al Yusr, is motivated to perform at his or her best for the benefit of the organisation and customers. These training sessions demonstrate commitment of Al Yusr to develop the human capital.


(Times Of Oman / 21 April 2015)
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SECP chief backs Islamic financing

KARACHI: 
Securities and Exchange Commission of Pakistan (SECP) Chairman Zafar Hijazi said on Wednesday the regulator is looking to enhance Shariah compliance in the capital markets by restructuring and reorganising the Islamic capital market.

Speaking at the fourth Islamic Finance Expo and Conference as chief guest, Hijazi discussed in detail the roadmap for the promotion of Islamic finance in Pakistan.
He added that the SECP is centralising the Shariah-related capital market activities besides improving the regulatory framework for Takaful, Modarabas, Islamic mutual funds, Islamic pension funds and Islamic real estate investment trusts (REITs).
Speaking on the occasion, trade and business representative Ateequr Rehman urged the government to directly borrow from the public instead of taking money from the banks. He also called for the development of mortgage financing segment besides highlighting the growth potential of Takaful, green financing and private-sector financing.
In his keynote address, State Bank of Pakistan Executive Director Syed Samar Hasnain called for a shift from debt-based system to an equity-based system. From the current 10% share of Islamic banking in the overall banking system, Hasnain said the central bank aims to increase it to 20% by 2020. The central bank has also made it easy for conventional banks to set up Islamic banking subsidiaries by reducing the paid-up capital requirement, he said.
Meanwhile, addressing the participants, Additional Inspector General of Police Ghulam Qadir Thebo said crime rate has reduced significantly in Karachi. He said each case of the 24 bank robberies in 2014 has now been resolved, and only one such case has surfaced in 2015 so far.
(The Express Tribune / 23 April 2015)
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Tuesday, 21 April 2015

IFSB guidance for Islamic banks may spur sukuk issues, deposit insurance

The Kuala Lumpur-based Islamic Financial Services Board (IFSB) has released final guidance on liquidity risk management for Islamic banks, which may spur national authorities to issue more sukuk and establish sharia-compliant deposit insurance schemes.
The guidance note, known as GN-6, clarifies the tools that Islamic banks can use to meet Basel III regulatory requirements, now being phased in for both conventional and sharia-compliant banks around the world.
It defines the types of high-quality liquid assets (HQLA) that Islamic banks can hold and the weights that should be assigned to Islamic deposits, which can be more volatile than conventional ones for various reasons, including the fact that they have relatively short maturities.
HQLA must have low correlation with risky assets, an active secondary market and low volatility. The highest level of HQLA includes sukuk (Islamic bonds) issued by sovereigns, multilateral development banks and the Malaysia-based Islamic Liquidity Management Corp.
Such HQLA should be accepted by central banks as collateral in their liquidity facilities, the guidance note says. The note could therefore encourage issuance of HQLA and local currency sukuk by sovereigns and their central banks, credit rating agency Standard & Poor's said in a research note.
"Based on the size of the Islamic finance industry, its composition, and its growth trajectory, we estimate the need for HQLA to reach about $100 billion in the next few years," S&P added.
The guidance note also details three arrangements that regulators can use to meet Basel III requirements in more undeveloped banking markets: central bank liquidity facilities, foreign currency HQLA that could be used to cover domestic currency liquidity needs, and expanded use of lower-level HQLA.
DEPOSIT INSURANCE
In the long term, the guidance note will also encourage regulators to develop Islamic deposit insurance schemes to reduce the need for HQLA, S&P said.
The note says such schemes could significantly lower the run-off rates, or weights, that are assigned to deposits. The riskier the funding source, the larger the amount of HQLAs needed to cover deposits.
For deposits classified as "stable", the IFSB guidance applies a 5 percent run-off factor, but this can be cut to 3 percent if a deposit insurance scheme is in place that is based on a prefunding system and is available quickly.
For less stable deposits, a minimum run-off rate of 10 percent is to be applied, the guidance note says.

The IFSB note classifies foreign currency-denominated retail accounts, which are large at some Islamic lenders, in the less stable category.
(Reuters / 20 April 2015)
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Azerbaijan’s Islamic banking skills to drive Russian Islamic finance development

Islamic finance industry in Russia still needs to be developed, despite some 20 million Muslims living in the country, and Azerbaijan’s skills maybe helpful for Russia.
Russia hopes to learn from the experience of Azerbaijan in the field of Islamic banking, said Sergey Drobyshevsky, the scientific director of the Gaidar Institute for Economic Policy in Baku last week.
He said the presence of IBA Moscow, a Russian subsidiary of the International Bank of Azerbaijan, the largest lender and the only state-owned bank in Azerbaijan, must contribute to this.
Drobyshevsky believes it will be easier for the Azerbaijani banks and businessmen to work in Russia than the Malaysian specialists of that sphere, where Islamic banking is also developed.
“There is no language barrier between Azerbaijan and Russia, they have similar culture and a lot in common,” said Drobyshevsky.
He also touched upon the prospects for the development of Islamic banking in Russia.
“The more financial instruments the market has, the more differentiated they are, the more effectively it helps investors to diversify their risks, according to the theory of finance,” he said. “These are new possibilities and their implementation does not depend on the state - it depends on the participants of the market themselves and potential customers of Islamic banking.”
Islamic banking can claim only 5 percent of the Russian financial market during 5-10 years, but the main thing is to start the process, Drobyshevsky emphasized, Trend reports.
Behnam Gurbanzada, the director of Islamic banking at the IBA, earlier called Russia a "promising" platform to further the development of Islamic finance.
“Azerbaijan with all prerequisites to build a bridge between Asia and the Middle East, as well as between the CIS and the Gulf countries, is supposed to receive good financial dividends from applying Islamic banking. The IBA is keen to develop a plan of amendments to the regulatory to apply the full-fledged Islamic banking in the country. The amendments can fasten up the process of creating the Islamic development center in Azerbaijan,” he told AzerNews earlier.
The Baku-based IBA is a universal bank with subsidiary banks in Russia, Georgia and Qatar, as well as representative offices in London, Frankfurt, Luxembourg, Dubai and New York. The bank, 50.2-percent owned by the Azerbaijani Ministry of Finance, holds over 40 percent of banking assets in the country.
The IBA‘s reported consolidated total assets of 8.8 billion manats, aggregate capital of 1.008 billion manats and net profit of 64.5 million under audited IFRS as at year-end 2014.
(Azernews / 20 April 2015)
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Monday, 20 April 2015

China Readies for Islamic Finance With a Little Help From Gulf

The most populous country in the world may be poised to get serious about Islamic finance, and banks in the Gulf Cooperation Council are taking note.

Qatar International Islamic Bank QSC and QNB Capital LLC last week signed an agreement with China-based Southwest Securities Co. to develop Shariah-compliant finance products in the country. Seven months after Hong Kong sold its debut sukuk, China is exploring Islamic finance for projects from hospitals to metro stations, according to London-based Dome Advisory Ltd., which is working with a government-owned fund in Shanghai to finance five projects.
“The Hong Kong sukuk has given more confidence to the Chinese market,” Sheikh Bilal Khan, a Shariah scholar and director of Dome, said by phone on April 16. “Having seen Hong Kong and the U.K. do this, and the fact Islamic finance is growing at a fast rate, in the next three to five years China will be a big player. It’s unavoidable.”
China’s growing interest in Shariah-compliant finance will add momentum to an industry that Ernst & Young LLP estimates will grow to $3.4 trillion by 2018, from $1.7 trillion two years ago. The world’s second-biggest economy in January approved plans to accelerate 300 infrastructure projects valued at 7 trillion yuan ($1.1 trillion), according to people with knowledge of the matter, in an effort to boost an economy expanding at the slowest pace since 1990.

Hong Kong Debut

Southwest Securities, based in Chongqing and majority-owned by the city’s state-owned enterprises, is seeking access to investors “primarily in Qatar and the Middle East,” according to an e-mailed statement from Qatar International Islamic Bank last week. The partnership is also intended to help the Qatari lenders access the Chinese market. The country is Qatar’s fourth-biggest trading partner, according to data compiled by Bloomberg.
Ningxia, an autonomous region in northwest China where a third of the 6.5 million population are Muslim, plans a $1.5 billion sukuk sale, according to a December exchange filing.
Hong Kong, the city that returned to Chinese rule from the British in 1997, sold $1 billion of five-year sukuk in 2014 and said it wants to become an Islamic finance hub. The notes yielded 1.74 percent on April 17, according to data compiled by Bloomberg. National Bank of Abu Dhabi PJSC, the United Arab Emirates’ biggest lender by assets, Abu Dhabi Islamic Bank PJSC, Dubai-based Emirates NBD PJSC and Qatar’s QInvest LLC all worked on the deal.

China Calling

While China in August allowed local governments to sell bonds directly to refinance debt following a two-decade ban, the country will need to make more regulatory changes to promote Islamic finance, according to Rizwan Kanji, a Dubai-based partner at law firm King & Spalding LLP, who helps structure Islamic deals.
“It’s the first step in the right direction, but there is work to be done before we see successful issuances,” he said by phone on April 16. Investors need a better understanding of the legal infrastructure and “enforceability issues,” he said.
China’s economy is forecast to expand 7 percent in 2015, according to median of 60 economists’ estimates compiled by Bloomberg, the slowest pace in about 25 years. The projects approved in January span industries including oil and gas pipelines, health, clean energy, transportation and mining, and will be funded by the central and local governments, state-owned firms, loans and the private sector, the people said.
“There’s a lot of appetite for GCC money,” Dome’s Khan said. “This agreement will hopefully pave the way for Islamic finance to pick up steam in mainland China.
(Bloomberg Business / 20 April 2015)
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Saturday, 18 April 2015

Malaysia's Successful Sukuk Issuance Reflects Its Position As Leading Islamic Finance Hub

KUALA LUMPUR, April 17 (Bernama) -- The success of Malaysia's US$1.5 billion sukuk issuance on Wednesday not only boosted investor sentiment but also reflects the country's position as the world's leading Islamic financial hub.

Affin Hwang Investment Bank Vice-President/Head of Retail Research Datuk Dr Nazri Khan Adam Khan said the bond was sold at a very reasonable rate and was well absorbed by global investors after the last issuance in 2011.

"Despite the 1MDB (1Malaysia Development Bhd) concerns, weakening ringgit and other uncertainties, we were still able to sell the sukuk with a very good yield," he told Bernama today.

The fact that the sukuk was able to attract global investors, particularly from the Middle East has suggested that the government's economic fundamentals remained healthy despite the ringgit trading at around 3.65 against the greenback.

On a possible downgrade, Nazri said it was not a consensus among the three main rating agencies, namely, Moody's Investors Service, S&P Ratings and Fitch Ratings.

Despite saying that Fitch was entitled to its own opinion on a possible downgrade, Nazri hoped it would not materialise as palm oil offtake were improving, the ringgit was strengthening and the government's tax restructuring plan was expected to boost the export sector.

The success of Malaysia's sukuk issuance, after a lapse of almost four years, has drawn positive response from international investors who have reaffirmed their confidence in the country's long-term economic fundamentals.


(Bernama.Com / 17 April 2015)
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Babacan promotes Islamic finance in US

Economic risks that arose after the crisis in 2008 were better managed under Islamic finance models when compared to other schemes, as they offered additional financial instruments with shared risks and less uncertainty, Deputy Prime MinisterAli Babacan said in Washington on Friday.
Speaking on the sidelines of annual spring meetings held jointly by the International Monetary Fund (IMF) and the World Bank, Babacan stressed that Islamic finance models are compatible with other financial models used across the world.
Highlighting that Turkey, as the rotating chair of the G20 group, appreciates the virtues of the Islamic finance models, Babacan also pointed to the inclusiveness of these models, referring to the millions of people in Muslim countries who are sensitive to Islamic rules but who avoid entering the global financial system due to a lack of options.
Previewing the G-20 discussions, Babacan told reporters on Thursday that the G-20 countries needed to do more to carry out commitments they made last year to jumpstart growth by investing in infrastructure projects and removing barriers to trade. "Growth is there, but it is weak ... and uneven," he said.
The finance ministers will produce a plan of action to be discussed by US President Barack Obama and other G-20 leaders at a scheduled summit in Turkey in November, as they attempt to boost global economic output by more than $2 trillion over the next five years. These finance officials from the world's major economies are searching for a mix of policies that will bolster a still-weak global recovery, nearly six years after a recession, while confronting a range of new threats from a soaring US dollar to a big drop in oil prices. The financial officials from the group of 20 nations also expressed concerns regarding potential market instability once the US Federal Reserve starts increasing a key interest rate which has been at a record low, near zero, since late 2008.
The discussions were being held among finance ministers and central bank presidents representing traditional economic powers such as the United States, Japan and Germany, as well as emerging countries such as China, India and Brazil. Treasury Secretary Jacob Lew and Federal Reserve Chair Janet Yellen represented the United States at the meetings, which began with a dinner on Thursday night and concluded with a news conference on Friday afternoon. Ali Babacan will sum up the group's discussions.
The G-20 talks came ahead of the spring meetings of the 188-nation IMF and its sister lending organization, the World Bank.
In addition to concerns about boosting global growth, the meetings were also to address issues including a plea for more aid to fight the Ebola outbreak in the West African nations of Liberia, Guinea and Sierra Leone. The presidents of those three nations were scheduled to meet with World Bank President Jim Yong Kim and UN Secretary-General Ban Ki-moon on Friday.
The meetings took place when much of the global economy remains stuck in a prolonged period of sluggish growth following the 2008 financial crisis and a recession that was the worst in seven decades. IMF Managing Director Christine Lagarde told reporters on Thursday: "The good news is that the global recovery continues. The not-so-good news is that growth remains moderate and uneven." She said the goal of this week's talks was to produce a revamped plan of action that will "prevent this new mediocre [growth] from becoming the new reality.”
The IMF's latest economic forecast predicted only modest overall growth and downgraded the prospects for some nations, including the United States, forecasting US growth of just 3.1 percent this year, a half-point lower than its January estimate. The reason: IMF economists believe the sharp rise in the value of the dollar will hurt American companies trying to export goods overseas. Growth prospects in oil-exporting nations are being hurt by the big drop in oil prices over the past year, but those declines are expected to boost prospects in many oil-importing countries.
This week the IMF also raised new concerns that severe volatility in financial markets could be triggered if the Federal Reserve moves, as is widely expected, to start raising interest rates later this year. If the Fed's rate hikes after a prolonged period of ultra-low rates, causing investors to rush for the exits, it could cause stock prices to tumble and interest rates to rise sharply.
(Todays Zaman / 17 April 2015)
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Friday, 17 April 2015

Malaysia successfully prices US$1.5bil global sukuk

KUALA LUMPUR: Malaysia has successfully priced US$1 billion of 10-year and US$500 million of 30-year benchmark Trust Certificates  (Sukuk) for a total deal size of US$1.5 billion.
The Ministry of Finance, in a statement, said, the 30-year tranche was the governments inaugural sukuk issuance which is the longest tenured sukuk ever by a sovereign. 
The deal was oversubscribed, attracting an aggregate interest of over US$9 billion from a combined investor base of over 450 accounts, it said.
The 10-year tranche was oversubscribed by almost seven times and the 30-year tranche was oversubscribed by approximately six times.
The sukuk, issued via a special purpose entity, Malaysia Sovereign Sukuk Bhd, employed a structure utilising Shariah-compliant commodities, leasable assets and non-physical income-generating assets (in the form of rights to participate in the provision of services), a world first for a sovereign sukuk. 
The ministry added that the offering marked the country's fourth US dollar-denominated sovereign global sukuk issuance, following its successful global sukuk issuances in 2002, 2010 and 2011.
Proceeds from the offering would be used by Malaysia for Shariah compliant general purposes, specifically for the redemption of 1Malaysia Sukuk Global Bhds US$1.25 billion Trust Certificates due in June 2015, as well as, to finance development expenditures.
"We are delighted to bring this ground-breaking Sukuk to the growing Islamic finance market. We are extremely pleased with the success of this deal and the confidence of the global investors in the Malaysian credit story", said  Treasury Secretary-General Tan Sri Dr Mohd Irwan Serigar Abdullah.
The 10-year tranche was allocated to investors in the Middle-East (24 per cent), Asia (50 per cent), Europe (16 per cent) and the United States (10 per cent), while the 30-year tranche was allocated to investors in the Middle-East (2 per cent), Asia (50 per cent), Europe (19 per cent) and the United States (29 per cent).
The deal was priced at the tighter end of the revised price guidance reflecting investors confidence, strong external position, monetary flexibility, fiscal sustainability, as well as, diversified and competitive Malaysian economy.
The sukuk are expected to be assigned ratings of A- by Standard and Poors Ratings Services and A3 by Moodys Investors Services Limited.

The deal was successfully priced following a global investor road show across key financial centres, comprising Kuala Lumpur, Hong Kong, Singapore, Abu Dhabi, Dubai, London and New York.
CIMB Investment Bank Bhd, The Hongkong and Shanghai Banking Corporation Limited and Standard Chartered Bank acted as the joint bookrunners and joint lead managers for the global Sukuk offering.

(The Star Online / 16 April 2015)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

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