Standard Chartered, which makes most of its revenue from Asia, is expanding its retail Islamic banking business in the UAE and Bahrain, two markets HSBC Holdings is withdrawing from.
Standard Chartered Saadiq, the lender’s Islamic banking unit, has started to offer Shariah-compliant financing to small and medium-sized companies in Bahrain, according to Sultan Ali Haider, Dubai-based general manager for consumer Islamic banking. The bank is also developing its businesses in the UAE, the second-biggest Arab economy, he said in an e-mailed response to questions on Monday.
“Our strategy is to continue to cater to this growing demand of the consumers for Shariah-compliant banking services,” Haider said.
Regional and global banks are stepping up efforts to seize a slice of an industry whose financial assets may double to $3tn by 2015, according to Standard & Poor’s. The “tough competition” prompted HSBC to announce this month that it would stop offering Shariah-compliant retail products in the UAE, Bahrain, Bangladesh, Singapore, the UK and Mauritius, markets that make up 17% of its Islamic business revenue.
The withdrawal was from “smaller markets where we don’t have sufficient scale,” Patrick Humphris, an HSBC spokesman, said in a phone interview on October 4.
Other providers see potential for growth: Mashreq Al Islami seeks to double its contribution to Mashreqbank’s profit to as much as 20% in three years, Moinuddin Malim, chief executive officer of the Dubai- based unit, said in an interview October 9.
Islamic banking expanded faster than the non-Shariah compliant industry in Malaysia, Indonesia, Turkey, Saudi Arabia, the UAE and Qatar between 2006 and 2010, according to a World Bank report released in March. In the UAE, the industry grew 27% in the period, behind Qatar and Turkey, the data show.
“Islamic banking is one of the fastest-growing finance businesses globally,” recording compound annual growth rates of 15% to 20% “in recent years,” according to Jonathan Tyce, a senior banking analyst at Bloomberg Industries. “The mainstay of Islamic banking assets is centred around the Arabian Gulf states, the Middle East and Malaysia,” he said in a report this month.
Assets in the six-nation Gulf Co-operation Council stood at about $411bn in 2011, more than twice the size in Asia, according to a report presented at the Global Islamic Finance Forum in Kuala Lumpur last month.
As the industry matures, Standard Chartered has “observed that more customers are now finding it easy to adapt to Islamic banking products and services,” Haider said. “Saudi Arabia, Kuwait, Qatar and the UAE are all big markets for Shariah- compliant banking, Saudi being the largest.
Saudi Arabia, the largest Arab economy, is one of three markets where HSBC said it would focus its Islamic finance offerings, the other two being Indonesia and Malaysia. The London-based bank would also continue to offer sukuk underwriting services through operations in Malaysia and Saudi Arabia, where a government spending programme of more than $500bn to upgrade infrastructure and create jobs is spurring record debt sales.
HSBC helped manage $8.5bn in GCC sukuk sales, or about 44% of $19.2bn record offerings this year, according to data compiled by Bloomberg. That has positioned the London-based lender to maintain its rank as the region’s top sukuk underwriter for a fourth year, the data show.
The bank, which owns a 40% stake in Riyadh-based Saudi British Bank, acted as the sole underwriter of the 15bn Saudi riyal ($4bn) January sale by the state-run General Authority for Civil Aviation, the kingdom’s biggest sukuk offering for 2012.
Standard Chartered helped borrowers raise $2bn in Islamic debt in the region this year, giving it a market share of about 11%, data compiled by Bloomberg show. The bank has requested a full Saudi banking licence and currently operates a capital markets office in the kingdom.
The bank has started to offer Shariah-compliant services to its private banking clients to boost its share of a fast-growing market, Haider said. The products include deposit accounts, property financing, equities, Islamic bonds or sukuk and mutual funds, it said in a statement on June 25.
“The trend points to a promising future,” Haider said.
Lender sees wider Iran settlement by year end
Standard Chartered said it was aiming for a wider year-end settlement with US authorities investigating its Iran-linked transactions.
The Asia-focused bank, on track for a tenth straight year of record earnings, agreed in August to pay New York’s banking regulator $340mn to settle allegations it hid some $250bn worth of transactions with Iran.
But other probes, including a criminal investigation, are still going on.
“We’re in active and constructive dialogue with all of the other agencies. We hope to get that finished and completed by the year end but it’s not wholly in our power to do that,” finance director Richard Meddings said.
Standard Chartered, which is negotiating with the Manhattan District Attorney, the US Treasury Department, the Justice Department and the New York Federal Reserve, said last month it could not predict the outcome or quantify potential liabilities.
The bank said yesterday its operating profit grew by a mid-single digit rate in the first nine months of the year.
Earnings would have risen by at least 10% but for the settlement with New York regulators who threatened to strip the bank of its state licence over its Iranian deals.
(Gulf Times / 30 Oct 2012)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
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