15% sukuk growth seen

KUALA LUMPUR: The Islamic finance industry will grow 15% annually in the next decade, after syariah- compliant banking assets surged in Asia in the past year, according to a global standards-setting body.

Holdings in Malaysia rose 27% to RM344bil in the 12 months to April 30, according to the central bank. In Indonesia, they climbed 43% to 144.3 trillion rupiah (US$15.2bil), official data show.

Rising consumer demand for banking services was helping drive the market, Jaseem Ahmed, secretary general of the Kuala Lumpur-based Islamic Financial Services Board (IFSB), said in a June 21 interview.

Government spending programmes in the key Islamic centres of Asia and the Middle East were bolstering economic growth and bringing in more funds for lenders, Rafe Haneef, chief executive officer at HSBC Amanah Malaysia Bhd, said on Tuesday. Industry assets may reach US$1.1 trillion in 2012, compared with US$826bil in 2010, according to a report from Ernst & Young LLP.

“Islamic banking assets worldwide have been growing at an average rate of 15% to 25% annually,” Rafe at the syariah-compliant unit of HSBC Bank Plc, said in an interview. “More and more countries, such as Egypt, are shifting to Islamic banking.”

Syariah banking in Indonesia accounted for 3.8% of the total in April, while the ratio was 24% in Malaysia, data from the monetary authorities show. Saudi Arabia’s US$94bil of financial assets that comply with religious tenets represent 26% of the market in the six-member Gulf Cooperation Council, according to a June 21 report from Deloitte Middle East Islamic Finance Centre in Manama, Bahrain.

Lenders’ assets have the potential to grow further as more countries adopt Islamic financing and sell sukuk, according to law firm Lee Hishammuddin Allen & Gledhill.

Oman and Hong Kong are in the process of drafting legislation, while Turkey, Afghanistan and South Africa are planning sukuk sales. Egypt was looking to introduce Islamic banking in a “big way,” HSBC’s Rafe said.

Issuance of bonds that comply with Islam’s ban on interest climbed to US$20.8bil in 2012 from US$14bil in the same period in 2011, led by the Middle East, according to data compiled by Bloomberg. HSBC Bank predicts full-year offerings will surpass 2011’s record of US$36.7bil.

“The outlook is positive for Islamic finance, with growth being primarily focused on consumer demand,” Megat Hizaini Hassan, a partner and head of the syariah-compliant finance practice at Hishammuddin Allen, said in an e-mail on Monday. “The emergence of new markets would be the main driver.”

The IFSB predicted in 2007 that the global Islamic finance industry would reach US$2.8 trillion by 2015. Jaseem declined to give a new forecast. “The industry is strong and growing and it’s expanding geographically,” he said.

Syariah-compliant notes have returned 5% this year, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index, while debt in developing markets gained 6.9%, JPMorgan Chase & Co’s EMBI Global Composite Index shows.

Average yields on global Islamic bonds dropped three basis points to 3.46% on Wednesday, the lowest level since August, according to HSBC. They declined 16 basis points, or 0.16 percentage point, this quarter.

The difference between the average and the London interbank offered rate narrowed three basis points to 242, the least since April 20, the HSBC index shows. The gap shrunk six basis points since March 30.

The International Monetary Fund predicts economic growth in Asia and the Middle East will outpace the United States this year as governments boost spending to shore up their economies from the euro-area debt crisis. – Bloomberg

Asset Projections

Gross domestic product in the Middle East and North Africa will increase 4.2 percent in 2012, compared with 2.1 percent in the U.S. and a contraction of 0.3 percent in Europe, the Washington-based fund forecast in its latest outlook report issued in April. Asia’s developing countries will see growth of 7.3 percent, it said.

Malaysia, the biggest market for sukuk, has implemented a 10-year $444 billion development program to build power plants, roads and railways. Indonesia, home to the world’s largest Muslim population, plans to tap last year’s $2.5 billion budget surplus to fund construction projects.

Malaysia is targeting Islamic banking assets to reach 40 percent of the total by 2020. In Indonesia, they will account for 15 percent to 20 percent within 10 years if growth is sustained, Halim Alamsyah, deputy governor of Bank Indonesia, said in a speech on May 7 in Bandung in western Java.

“Islamic finance has developed not only in traditional Muslim markets like Malaysia and the Middle East, but also in conventional markets,” Zainal Izlan Zainal Abidin, executive director for Islamic capital markets at the Securities Commission, said in an e-mailed statement yesterday. There are “a growing number of jurisdictions across the globe at various stages of developing their capabilities in Islamic finance,” the note said.

--With assistance from Yudith Ho in Jakarta. Editors: Simon Harvey, Sandy Hendry

To contact the reporter on this story: Liau Y-Sing in Kuala Lumpur at yliau@bloomberg.net

(The Star Online / 29 June 2012)

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