Saudi Arabia's National Commercial Bank raises one billion riyal sukuk

The sukuk will strengthen the bank's capital base in accordance with the Basel III framework, the bank said. It will help the bank to grow while keeping capital adequacy levels healthy, it said.

"The sukuk will also extend the maturity profile of NCB's liabilities while continuing to diversify its sources of funding," NCB said.

The sukuk has no set redemption date, although NCB has the right to call on it at an unnamed predefined date, it said.

Amir Ahmad, a Dubai-based banking expert at Pinsent Masons, the law firm behind Out-Law.com, said: "This issuance shows the depth of liquidity available on the Islamic markets for banks like NCB."

Sources told Reuters that Riyad Bank, Saudi Arabia's fourth-largest lender by assets, has completed a sukuk worth 4 billion riyals which would enhance its Tier 2, or supplementary, capital. 

Saudi British Bank, an associated company of the HSBC group and the kingdom's sixth-largest lender, privately placed a 1.5 billion riyal subordinated Tier 2 sukuk last month, Reuters said.

Islamic banking and finance is projected to exceed $2.5 trillion of assets in 2015as the industry extends its reach into new international markets, according to the Dubai-based AlHuda Centre of Islamic Banking and Economics (CIBE).

(Out-Law.Com / 24 June 2015)

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

Islamic Commercial Banking in Indonesia and Malaysia

CIMB Islamic, HSBC Amanah and OCBC Al-Amin said the biggest challenge to the growth of Islamic commercial banking is a lack of awareness and the need to explain the advantages of Shariah-compliant financing from an economic perspective.

Islamic trade financing isn’t competitive, Mohamad Nedal, former secretary-general of the Accounting & Auditing Organization for Islamic Financial Institutions in Bahrain, said in an interview last year.

“Having a multinational corporation convert to Islamic financing would need a majority of management to believe in Islam,” said Fares Mourad, head of Islamic finance at Bank Sarasin & CIE, the Swiss wealth manager controlled by Rabobank Groep, said.

Outstanding Islamic debt worldwide amounted to $180 billion at the end of 2011, from $33 billion five years earlier, according to Bank Negara Malaysia data released last week.

Global sales of Islamic bonds, or sukuk, reached $8.2 billion this year, compared with $4.5 billion in the same period of 2011, according to data compiled by Bloomberg.

Islamic commercial services include Murabaha agreements, where the bank buys an asset for a client and then sells it back with a deferred payment and mark-up. Ijara leasing contracts, where the lender purchases a product on behalf of the customer then leases it back with the option to buy at the end of the agreement, are another alternative.

The advantage for companies using Shariah-compliant products include access to alternative funding sources, tax incentives and an improved public image, according to Syed Abdull Aziz Jailani Syed Kechik, Kuala Lumpur-based chief executive of OCBC Al-Amin Bank.

“We see the SMEs being quite receptive and open to Islamic finance and quite a number of them are familiar with it,” Badlisyah Abdul Ghani, chief executive at CIMB Islamic in Kuala Lumpur, said on March 2. Bigger companies’ “desire or need to explore alternative forms of banking is less,” he said.

Malaysia has a centralized Shariah law board that approves regulations and products together with the central bank, he said. That is in contrast to the lack of standardization between the six member nations of the Gulf Cooperation Council, which comprises Saudi Arabia, the United Arab Emirates, Qatar, Bahrain, Oman and Kuwait.

“Islamic commercial banking in the Association of Southeast Asian Nations is more developed,” he said. “The industry effectively has the full range of commercial banking products, especially in Malaysia.”

An Indonesian regulation that specifies off-balance sheet accounting for assets financed using Shariah-compliant products has given Ijara contracts a competitive edge, HSBC Amanah’s Bustaman said.

(EbelingHeffernan,14 March2012)

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