Wednesday, July 22, 2009

EonCap Islamic explores new avenues of growth

By Sumathi Wong & Habhajan Singh
EONCAP Islamic Bank Berhad (EonCap Islamic), with a good handle on motor vehicle financing which is the mainstay of its parent company, is also looking at cracking open new growth areas, especially on the personal financing front. One recent area that it has explored is personal financing for members of the armed forces and the civil service, a potentially large captive market.
"Personal financing is very peculiar and specialised for the armed forces and recently we launched personal financing which is open to civil servants," said EonCap Islamic chief executive officer and executive director Foziakhatoon Amanulla Khan. She explained that personal financing for the armed forces and the civil service has thus far received a good response.
"This move also allows us to grow our current and saving's accounts," she said.
EonCap Islamic's motor vehicle financing, called Hire Purchase-i (Auto Aitab) with the underlying contract based on the Shariah principle of Al-Ijarah Thumma Al-Bai (Aitab), remains its main engine of growth.
"Aitab or EonCap's car financing still remains the biggest contributor along with mortgage financing," she told The Malaysian Reserve in a recent interview.
In an earlier report in June, The Malaysian Reserve had reported that EonCap Islamic is not perturbed that its car financing sector remains the biggest contributor to its financing portfolio despite falling car sales due to the contracting economy. The Islamic bank was confident of its car financing segment in view of low non-performing rates (NPR) and a good mix of cars under financing.
"We do see a slowdown, but it is fine. Our non-performing loans ratio is fantastic. In fact, we are below average within the industry's non-performing loans ratio. We are at about 2%," Fozia had then told this newspaper.
She was responding to a question on whether management was concerned that the economic contraction would cause a potential slowdown within its financing front as car financing is a major component in its portfolio.

EonCap Islamic is a wholly owned subsidiary of EON Bank Bhd, which in turn is a wholly owned subsidiary of EON Capital Bhd. The group's Islamic assets expanded by 15.7% to RM7.1 billion and its gross Islamic financing advanced by 3.3%, according to EON Capital's annual report for the financial year ended Dec 31, 2008.
In 2008, the report said EonCap Islamic's Aitab and mortgage products continued to grow at the projected level of 7.9% and 2.1% respectively. It added that total deposits and assets have increased by 5.5% and 15.7% respectively, contributing 15% to EON Bank's total deposits and assets.
At the same time, Fozia said the bank is also growing its ar-rahnu product — pawn broking.
"We had that many years ago, but it's just that it was not emphasised and we didn't have the right people to manage it. Now, we are relaunching it, so we hope to get the right response," she said.
EonCap Islamic had also, in the last one or two years, set up its corporate banking team and investment banking team. "They handle fee-based activities as well as corporate financing and SME financing. We do have exposure to corporate financing. It is small at the moment but it's growing. It's about 25% of our asset base. Our total asset size is about RM6.3 billion," she said.
She said parent Eon Bank was already offering Islamic retail products, in particular mortgage and Aitab.
"When they set it up as a subsidiary in April 2006, it was transferred to the balance sheets. For a start the retail banking the size for our portfolio is 75% retail and 25% corporate or commercial. The 75% retail is where the largest chunk is Aitab and mortgage. But in addition to our mortgage and Aitab, we have grown our personal financing segment.
On its staffing and branches, she said its staff strength is about 100 at the head office, with five full-fledged Islamic branches in Alor Setar, Kuala Terengganu, Kota Bahru, Putrajaya and the Kuala Lumpur main branch.
"We do plan to open up more branches in the future, but the timing is not yet fixed. With the current economic situation, we may have to relook at our strategy.
"We want to look at strategic locations when the time is right to open branches. While some may disagree, I think it's a good time for us to embark on opening branches, but we have to be very selective on the location," she said.

(This story appeared in The Malaysian Reserve on July 20, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Unicorn Malaysia eyes deals worth RM1b to triple profit

By Sumathi Wong
Unicorn International Islamic Bank Bhd (Unicorn Malaysia) hopes to secure deals worth up to US$300 million (RM1.06 billion) this year and is optimistic of at least tripling its current year’s profit.
"We are not going for billion-dollar projects, but (rather) projects ranging from US$50 million to US$100 million as they are more manageable," Unicorn Malaysia chairman Datuk Vaseehar Hassan Abdul Razack said.
Its corporate and investment banking segments will continue to drive the Islamic bank's ambitions to achieve this target. For its first full financial year last year, it made a profit of RM812,546.
He was speaking to reporters after the signing of a RM101 million joint Islamic financing deal with Bank Kerjasama Rakyat Malaysia Bhd (Bank Rakyat) for the Citta Mall project, which is being developed by Puncakdana Sdn Bhd and SEB Asset Management. According to Vaseehar, the US$50-US$100 million segment is a niche market for Unicorn Malaysia to focus on.
He said: "We have about three or four mandates in hand, but it's too premature for us to name (any) until we successfully complete them."
Some of the areas that the bank is considering are the oil and gas and shipping industries. The bank, Vaseehar added, is open to talks with Malaysian companies that have plans to go regional.
He noted that Unicorn Malaysia is also looking to collaborate with more local Islamic banks for tie-ups similar to the one inked with Bank Rakyat. Unicorn Malaysia is a wholly-owned subsidiary of Unicorn Investment Bank BSC of Bahrain.
It offers a full range of non-Malaysian ringgit banking under the Malaysia International Islamic Financial Centre (MIFC). The bank focuses on four core areas namely investment banking, corporate banking, treasury and strategic mergers and acquisitions.

(This story appeared in The Malaysian Reserve on July 22, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Wednesday, July 15, 2009

Shariah banking jobs still in demand

By Habhajan Singh
Islamic finance jobs are still in demand and experts in the field are still having a field day moving around. The present financial turmoil has certainly impacted the conventional banking and insurance sector, with bankers and financial experts dropping off the radar in the Middle East, for example.
However, on the Islamic finance front, the situation does not seem that dire, with the job market still having vacancies, and key players having the luxury of job mobility.
A scan on Islamic finance related jobs listed on the various web portals show an impressive list, provided the candidates are armed with the required skills in this field, which now boasts some 250 Islamic financial institutions globally.
The legal sector features prominently, with law firms looking to rope in lawyers with expertise in Islamic finance, to be based in places like Dubai and Riyadh in Saudi Arabia.
Almost a year ago, The Malaysian Reserve spoke to two Islamic bankers on the prospects of the job market. Both have since moved on. Then chief operating officer of Asian Finance Bank Bhd Daud Vicary Abdullah has gone back to the consulting world, rejoining Deloittee, while Yakub Bobat, who spearheaded the establishement of HSBC Amanah Malaysia Bhd, a stand-alone subsidiary, is now with an Islamic bank in Saudi Arabia.
In March, Malaysian Industrial Development Finance Bhd (MIDF) announced the appointment of Mohamad Safri Shahul Hamid as its new deputy chief executive officer of MIDF Amanah Investment Bank Bhd. He was with Deutsche Bank Dubai and previously at CIMB Islamic Bank Bhd.
The appointment signals MIDF Investment's move to tap the growing Shariah-approved financing, including cutting sukuk deals.
Safri's colleague in Dubai is also now in Kuala Lumpur. Ali Zaidi left Deutsche Bank Dubai to join Maybank Investment Bank Bhd in March as its executive vice president, and has been tasked with promoting capital structures other than sukuk.

Experts Wanted

The most interesting job found in The Malaysian Reserve's scan is an opportunity to lead an Islamic bank across Africa. The bank, based in the United Arab Emirates (UAE), is looking for a president of an Islamic bank.
"This is an ideal opportunity for an entrepreneurial individual who is looking for a platform to prove ability to manage and grow a business," it said in an advertisement found online.
Who fits the bill? The ideal candidate should "have at least 17 years experience, be one who clearly understands banking (especially corporate and retail), a strategic individual who will be able to visualise a clear path with the ability to enhance valuation of the business".
It would definitely help if the candidate has had some exposure to the African market, understands Islamic banking and has managed sizeable teams with a proven track record, it added.
Meanwhile, a specialist Islamic finance firm is looking for an experienced Islamic finance product structurer for its Dubai office. The job responsibilities include finding innovative new solutions to make conventional products Shariah-compliant and structuring multiasset Islamic finance products for Islamic clients in the GCC region (pricing, preparation of pitch books, modelling).
The person is also expected to redraft and implement conventional products underpinning documentation in order to make them Shariah-compliant.
An Islamic bank in the Middle East has also advertised for an Islamic banking IT project manager to be based in Qatar. Not For Saudi In April, a news agency reported that a growing number of investment bankers whose jobs have been axed due to the global financial crisis are leaving conventional banking to move into Islamic finance. Executives from Islamic banks told the news agency that the number of applications from conventional bankers wanting to enter the industry, seen as having huge growth potential, was rising sharply.
"It's totally changing. I'm seeing CVs from the London market, also the Far East, and more than anywhere else, from Dubai," head of private equity at Bahrain-based Islamic investment bank Gulf Finance House (GFH) Nabeel Kazerooni told Reuters. But there was one blip on the radar.
Based on a report picked up by Bloomberg, Saudi Arabia does not need more university graduates with degrees in Islamic studies entering the workforce, Okaz reported, citing the director of the Jazan University Mohammed Ali al-Hazaa.
The Jeddah-based newspaper cited al-Hazaa as saying that the Saudi job market is "saturated" with graduates with degrees in Shariah law and more would only increase unemployment in the kingdom.
In Malaysia, however, demand for Islamic finance talent will only increase should the regulator's plan to allow the setting up of two Islamic mega banks take shape. In April, under the liberalisation of the financial sector, the government offered two new mega Islamic banking licences to foreign players with minimum paid-up capital of US$1 billion (RM3.54 billion).
On July 8, Bank Negara Malaysia (BNM) governor Tan Sri Dr Zeti Akhtar Aziz told reporters that several financial institutions from the Middle East and Western countries have shown interests in setting up Islamic banks in Malaysia, whose closing date is in October.

(This story appeared in The Malaysian Reserve on July 13, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Ithmaar Bank sees net profit plunge 88% amid global slowdown

Established in 1984, Ithmaar Bank (Ithmaar) is a regional banking and financial services group, whose services include investments, private, retail & commercial banking, private equity, Islamic insurance & assurance, equipment leasing and real estate development.
It has an operational presence and investments across the MENA and Asian region. Moreover, in a view to broaden its GCC presence, Ithmaar was also cross listed on the Kuwait Stock Exchange in 2008.
During 1Q09, Ithmaar’s net profit plunged 88% to US$3.83 million (RM13.71 million) from US$32.01 million in 1Q08 on falling operating income, rising impairment provisions and foreign currency translation loss.
The bank’s total operating income declined 51.1% to US$49.26 million in 1Q09 from US$100.76 million in 1Q08 on falling interest rate and non-interest incomes. Its annualised net interest margin and net spread decreased 260 bps and 120 bps to 1.1% and 2.4% in 1Q09, respectively. As a result, net interest income plummeted 58.2% to US$9.39 million in 1Q09.
Moreover, fees and commission income and income from fund management and services fell 20.2% and 54.5% to US$7.55 million and US$2.19 million in 1Q09, respectively. Income from investment properties was lower by 60.4% qo-q at US$24.46 million from US$61.74 million q-o-q.
However, the bank reported a trading income of US$1.82 million as against a trading loss of US$0.25 million in 1Q08. On the expenses side, its operating expenses decreased 21.8% to US$31.85 million on account of a 20.5% decline in staff costs and a 39.6% fall in general and administrative expenses, countered by a 14.4% increase in depreciation and amortisation expenses.
However, share of profit of associated companies rose to US$9 million from US$0.67 million during the same quarter of the last year on the increase in its total associates.

Outlook and Valuation

Driven by the ongoing financial crisis and subsequent global economic slowdown, consolidated balance sheet of wholesale banks witnessed a negative growth of 3.8% to reach US$188.9 billion in 2008. This negative growth has continued and assets have further declined to US$179.9 billion in 1Q09. However, the industry is wellsupported by the regulator, which encourages innovation while providing sound regulatory framework.
Moreover, Fitch expects the writedowns would continue to impact across the Bahraini retail and wholesale banking sectors along with an "adequate" profitability for 2009. Background Ithmaar was established in Bahrain on Aug 13, 1984, as Faysal Investment Bank of Bahrain EC (Fibec).
Until 2003, Fibec was a wholly-owned subsidiary of Shamil Bank (Shamil) with a Shariah-complaint investment banking licence granted by the Bahrain Monetary Agency (BMA).
In 2003, Shamil sold Fibec to Dar al-Maal al-Islami Trust (DMI) and then DMI changed its name from Fibec to Ithmaar Bank. The bank went public in 2006 and got listed on Bahrain Stock Exchange.
Moreover, with an aim to expand its GCC presence, Ithmaar is now cross listed on the Kuwait Stock Exchange in 2008. During 2003, with the acquisition of certain investments from DMI for US$46 million, Ithmaar indirectly acquired a 49% and 28% interest in Faisal Finance (Switzerland) SA and Faysal Bank Limited of Pakistan, respectively.
Moreover, in the same year, it purchased a 40% stake in Solidarity Company BSC for a total consideration of US$40 million and a 23% stake in Faisal Islamic Bank of Egypt for US$34 million from DMI. Ithmaar acquired Shamil in two parts — a 60% stake was acquired in 2006 in consideration of 100% shareholding in the Islamic Investment Company of the Gulf (IICG) Bahamas to DMI, and in 2007, it bought the remaining 40% with share swap ratio of 12:10.

-- Extracts from Bahrain-based Taib Research

(This story appeared in The Malaysian Reserve on July 13, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Thursday, July 9, 2009

BNM gets queries on Islamic bank licenses

By Lee Cherng Wee
Several financial institutions from the Middle East and Western countries have shown interests in setting up Islamic banks in Malaysia, according to Bank Negara Malaysia (BNM).
"We received several enquiries and had discussions on the process of submitting the applications. The closing date is in October," said BNM governor Tan Sri Dr Zeti Akhtar Aziz in a press conference after opening the Malaysia-UK Islamic Finance Forum yesterday.
In April, under the liberalisation of the financial sector, the government offered two new mega Islamic banking licences to foreign players with minimum paid-up capital of US$1 billion (RM3.54 billion).
Zeti added that out of the enquirers, two have stated their intention to partner local financial institutions. Earlier in her opening speech, Zeti noted that Islamic financial assets account for 17% of total assets of the local banking system and the daily average volume transacted in Malaysia’s Islamic money market is RM6 billion.
When asked about the interest rate, the governor said current interest rates is at an appropriate level but does not rule out a further rate cut due to uncertainties in the external environment.
"We see our domestic economic conditions being stable and certain sectors show a t rend towards posit ive growth, but the external environment remains very uncertain, therefore from time to time we will review the outlook particularly the external environment and from there we will decide on the interestrate policy," she said.

On the economy, Zeti said the second quarter performance will be similar to the first quarter with improvement expected in the second half of this year.
The government’s stimulus package has been aggressively implemented and the central bank expects to see the effects in the third and fourth quarters, she added.
"We have never relied on the exchange rate to gain competitiveness. In the immediate and short term we see volatility in our exchange rate, just like we see volatility in the major currencies in the international financial system that is determined by financial flows across borders.
"However, over the medium term our exchange rate will continue to reflect our underlying fundamentals and as our underlying fundamentals are expected to improve then the currency can also be expected to strengthen gradually overtime," said Zeti when commenting on the ringgit.

(This story appeared in The Malaysian Reserve on July 9, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Takaful Malaysia eyes 50% market share in 2-3 years

By T Vignesh
Syarikat Takaful Malaysia Bhd (Takaful Malaysia) expects to capture slightly more than half of the takaful industry's total asset market share in the next two to three years despite the current economic crisis. Managing director Datuk Mohamad Hassan said the industry's total assets have reached RM12 billion and the company's share currently stands at RM4.05 billion.
"We are confident of achieving slightly more than the current takaful market rate, which is between 22% and 25% per annum," he told reporters after a signing ceremony with Standard Financial Planner Sdn Bhd (SFP) in Kuala Lumpur yesterday.
Takaful Malaysia became the first in the takaful industry to add professional financial advisors to its existing portfolio of distribution channels following the appointment of SFP to market its products. SFP has a nationwide network of more than 300 representatives of whom 75 are licensed financial advisors with Bank Negara Malaysia.
Mohamad Hassan said that this will enhance the penetration of the company's family and general insurance products into the middle-upper Malaysian market, thereby makes Takaful Malaysia's products more accessible to a wider customer base.
He said the company is confident of the selection of SFP due to its position as a market leader and largest independent financial advisory group in Malaysia. S FP is also the first financial planning group in Malaysia to hold both Financial Advisors (FA) and Corporate Unit Trust Advisor (CUTA) licences.
At the signing ceremony, SFP's CEO Alfred Sek said the past ten years have witnessed fresh changes to the financial planning industry and its delivery of financial advice in Malaysia.
He said that Takaful Malaysia will greatly benefit from this arrangement as its potential customers will develop full confidence in the products offered, through high quality independent advice from these Financial Advisors.
Meanwhile, Takaful Malaysia has plans to undertake a rebranding exercise to reflect its fresh characteristics in conjunction with its 25th anniversary this year.

(This story appeared in The Malaysian Reserve on July 9, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Exim Bank to introduce takaful products next yr

Export-Import Bank of Malaysia Bhd (Exim Bank) is poised to expand its reach further by offering better options to customers via the introduction of Shariah-compliant products.
Islamic financing has been identified as a new area of growth for the bank in view that Malaysia is expanding trade involving the Organisation of Islamic Countries (OIC) member states.
The bank has envisaged that by end-2009, it would have sufficient Shariah-compliant banking products to cater for the needs of its growing global customers, said managing director/CEO Mohd Fauzi Rahmat. "We are also planning to introduce takaful (Islamic insurance) products by next year," he said in a statement on Monday.
Exim Bank supports the financing needs of Malaysian companies and investors with operations in four continents across two dozen countries worldwide. Asean and Middle East will continue to be major contributors to the bank's portfolio with about two-third of its exposures while Africa, Europe and Asia Pacific make up the rest.
According to Fauzi, the bank is committed to continue its drive to support local exporters and investors extending their international business by providing banking facilities and insurance coverage particularly those that significantly contribute to the extension and enlargement of Malaysia's export volume, value and markets.
While the bank recognise that 2009 would be more a challenging year amidst global economic uncertainties, it would continue to provide support to its existing and potential customers and partners who are willing to take the challenge and participate in the still significant global trade and investments and to be ready for future businesses when the economy picks up.
In 2008, Exim Bank approved a total of RM460.3 million direct loans and guarantees to customers in various sectors including construction, investment, manufacturing and commodity trading.
In addition, the Export Credit Refinancing, extended via participating financial institutions and by far the single largest product of the bank by volume, contributed a total of RM9.5 billion in loan disbursements compared with RM8.4 billion in the previous year.
In trade credit insurance, it has a total of RM2.43 billion business in force in 2008, against RM2.78 billion in 2007. As for commercial and political risk insurance business, the bank approved RM120 million worth of business last year reflecting it cautious approach in light of the global economic crisis.
The total Malaysian exports insured for 2008 amounted to RM2.55 billion and is spread over 72 countries primarily across Asia and Africa.
"Exim Bank maintained a positive and stable performance for both banking and insurance businesses although a more selective approach has been adopted to respond to the current global economic situation," Fauzi said.
To strengthen its capacity to undertake more businesses, the shareholders' funds of Exim Bank has increased to RM2.8 billion in 2008 from RM839 million a year ago. This would go a long way in ensuring that Exim Bank continues to thrive as a vibrant and active Development Financial Institution for Malaysian exporters and investors over the medium and long-term.

(This story appeared in The Malaysian Reserve on July 8, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Sunday, July 5, 2009

‘Hedging permissible in Islamic finance’

By Habhajan Singh
Hedging is permissible in Islamic finance and the industry should not look at banning derivatives, says a Shariah scholar.
Dr Mohammed Daud Bakar said that Islamic finance cannot depart from risk management for both pre and post transactions.
"We can have Islamic hedges, but we cannot allow Islamic speculators. Hedges are permissible," he said at the 5th International Islamic Finance Forum Asia 2009 in Kuala Lumpur last week.
Mohd Daud, who runs Amanie Business Solution Sdn Bhd and chairs the Shariah Advisory Council (SAC) of Bank Negara Malaysia (BNM), was one of the panelists at the two-day conference organised by Informa Finance.
He said that hedging is important as institutions need to hedge against the real risk faced in day-to-day transactions.
"We cannot ban Islamic derivatives. They are required. Some speakers tend to give extreme examples of CDS — (as) one of the reasons that brought down some large financial institutions in the US (in arguing against allowing hedging in Islamic finance).
"But CDS is a remote example. It is not reflective of derivatives on the whole," he told the conference.
Credit default swaps, or CDS, became a buzzword in the financial market following the spectacular collapse of a number of big names in the US during the financial crisis.
Hedging risk is one of the typical concerns at a bank, including Islamic financial institutions. They go hand in hand with the management of risks concerning liquidity and also that of asset and liabilities management.
Treasury risks include risks arising from the management of the financial resources of financial institutions in terms of cash management, equity management, shortterm liquidity management as well as asset and liabilities management. In an earlier paper at another event, Mohd Daud touched on the Shariah perspective of the economics of hedging.
He noted that the principles of capital protection, risk management and risk hedging are essentially acceptable to the general principles of Islamic law as long as they are free from (a) taking and paying interest, (b) uncertainty in pricing, subject matter and other relevant aspects in a contract (gharar); and, (c) any element/clause/practice which contradicts the very purpose of an underlying contract (e.g. capital guarantee in investment contract).
Although these economic objectives may be acceptable under Shariah law, the mechanism to achieve the desired objective must be equally compliant, he added. Mohd Daud was one of the panelists examining the risk return potential of derivatives and hedge funds in the Islamic finance market. The session was moderated by head for product development of Bursa Malaysia Bhd's Islamic capital market Norfadelizan Abdul Rahman.
Other panelists were Singapore-based AFG Capital Management managing director Kevin Ho and Thomson Reuters global head of Islamic finance Rushdi Siddiqui.
In another panel session entitled "Positioning Islamic finance to tap into new non-Islamic markets" moderated by The Malaysian Reserve's associate editor Habhajan Singh, the panelists were Rushdi, Kuwaitbased Rasameel Structured Finance vice chairman and CEO Issam Al-Tawari and Citi head for regional Islamic structuring at fixed income, currencies and commodities Ahmad Shariman Mohd Shariff.
The conference was officiated by Accounting and Auditing Organisation for Islamic Financial Institution's (AAOIFI) secretary general Dr Mohamad Nedal Achaar.
Among top local Islamic bankers attending the two-days conference were Kuwait Finance House Malaysia acting CEO Ab Jabbar Ab Rahman, Unicorn International Islamic Bank Malaysia Bhd (Unicorn Malaysia) CEO Khalid Mahmood Bhaimia and CIMB Islamic Bank Bhd CEO Badlisyah Abdul Ghani.

Govt helps prop up UAE Islamic banking sector

With more than 250 Islamic financial institutions operating worldwide, the global market for Islamic financial services, as measured by the Shariah Complaint Assets is estimated to have reached US$729 billion (RM2.57 trillion) in 2007, up 37% from US$531 billion in 2006.
There is still a large concentration of Islamic assets within the MENA region (accounting for 78% of the total), with the UAE (United Arab Emirates) being ranked fifth, according to The Banker, in 2007 with assets of US$49 billion.
As of 2008, out of the 52 commercial banks operating in the country, eight were full fledged Islamic banks with an estimated asset size of AED192 billion (RM184.33 billion) representing 13% of system assets, a 200 bps increase over 2004.
Our Islamic peer group, Dubai Islamic Bank (DIB) and Abu Dhabi Islamic Bank (ADIB), enjoys strategic holdings by either government controlled funds or by ruling families; the Dubai based SWF, investment corporation of Dubai, holds a direct 29.8% stake in DIB, whereas ADIB’s ownership includes a 7.6% stake held by the capital’s SWF, the Abu Dhabi Investment Council.
As of 2008, the two banks combined controlled 9% (AED136 billion) of UAE banking system’s aggregate assets. As we have explained the dynamics of the banking sector in our UAE Banking Sector report dated April 5, 2009, it is clear that the government’s decision to aid the banking system (via AED16 billion Tier 1 notes; AED70 billion deposits being converted into Tier 2 capital; and AED50 billion borrowing facility) was a positive step as 1Q09 witnessed the local banking sector’s Loan-Deposit (LD) ratio record 104% (600 bps q-o-q decline) and the Capital Adequacy Ratio rise to 16.2% (340 bps q-o-q increase).
Overall, we believe, that our Islamic peer group should face a tough year ahead due to high average NPL ratios (3.4%), cost-income ratios (40%), slow balance sheet growth, comparatively high exposure to sectors such as real estate (3% of assets) and larger provisioning (2009F 26% of operating profit), all of this combined with the primary factor of high fragmentation of assets (leading to lower margins).
Further, added pressure is expected to arise from real estate related income (2008 33% of operating profit), which we expect to half during the current year with growth forecasted to return only during 2010. Despite these shortcomings, we expect DIB and ADIB to report positive net profit growth rates in 2009 and believe that the longterm prospects of our peer group is promising, backed by strong ownership by the government, low LD ratios (77%) and little dependency on wholesale funds (5% of liabilities). All of this adds support to the continued infrastructural expansion plans (supported primarily by the government).
Amongst our Islamic peers, ADIB is expected to outperform with regards to profitability over our forecast horizon, with the bank firmly positioned in an aggressive growth phase of its business cycle, with financing income, in specific, expected to prop up bottom line numbers over the coming few years.

(Extracts from a note from research outfit Prime Holding, dated June 25, 2009)

(This story appeared in The Malaysian Reserve on July 6, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Global sukuk slide continues in 2Q riyadh

The global issuance of Islamic bonds, or sukuk, fell 35% to US$5.3 billion (RM18.69 billion) in the second quarter compared with a year earlier but a rebound may be within sight, data from Zawya Sukuk Monitor shows. Year-on-year declines in the primary sukuk market were offset by a 164% surge in volume compared with the first quarter for sukuk, indicating renewed demand for Shariah-compliant debt instruments, according to's latest research.
Investors are once again putting faith in the sukuk market despite the ongoing financial crisis, which continues to weigh on banks and finance companies, reports Zawya Dow Jones.
The report quoted Standard Chartered Bank's chief executive officer for Islamic banking Afaq Khan as saying: "The global market for sukuk issuance should recover by the second half of 2009. We expect close to US$10 billion in primary sukuk issuance this year."
Malaysia and Indonesia topped Zawya's list of issuers, followed by Bahrain and Saudi Arabia. A total of 42 bonds went to market in the second quarter, out of which 30 deals where sold by governments, the data shows.

Bank Islam sees RM1b in home financing

Bank Islam Bhd is aiming for RM1 billion in home financing and refinancing for its current financial year ending June 30, 2010, managing director Datuk Zukri Samat said last Friday.
According to him, the bank's financing for the housing sector is expected to grow by 10% this year, in line with the industry growth of between 8% and 10%.
"For the first six months of this year, we have captured over RM600 million in home financing," he told reporters after launching the "Sinar Letrik Home Campaign" in collaboration with Tenaga Nasional Bhd (TNB) in Kuala Lumpur.
Zukri said Bank Islam has targeted to gain RM250 million in home financing and refinancing under the campaign, which started last Friday and will end on September 30, 2009. Under the campaign, the bank will reimburse the electricity bills of new home financing customers for five consecutive years.
The amount to be reimbursed is based on the scale of financing and upon completion of the properties, he said.
Customers, he added, have to apply for financing or refinancing of at least RM150,000 to enjoy the benefit.
At the launch, TNB chief executive officer Datuk Seri Che Khalib Mohamad Noh said the campaign was running parallel to its effort in promoting automatic payment such as auto-pay and direct debit.
Che Khalib said up to May this year, about 135,00 TNB customers had registered for auto-pay and direct debit while 260,000 made payments online and 333,000 through automated teller machines (ATMs).
"The rest are still making payments via Kedai Tenaga outlets and collection agents," he said. — Bernama

‘No more Islamic Law graduates needed’

Saudi Arabia doesn’t need more university graduates with degrees in Islamic studies entering the workforce, Okaz reported, citing Mohammed Ali al-Hazaa, the director of the Jazan University.
Bloomberg reported that the Saudi job market is "saturated" with graduates with degrees in Shariah law and more would only increase unemployment in the kingdom, the Jeddah-based newspaper cited al-Hazaa as saying.
Saudi Arabia is spending US$400 billion (RM trillion) over the next five years to create jobs, boost oil production and help improve education, which has been dominated by Islamic clerics. King Abdullah University of Science and Technology will offer graduate-level science and technology degrees in partnerships with the University of Cambridge and Stanford University when it opens in September 2009, according to its website. Jazan University, located in southwestern Saudi Arabia, was established in 2006 by King Abdullah, the report said.

CIMB unit set to complete sukuk pipeline

CIMB Islamic, the world's leading arranger of Islamic bonds, is poised to complete its 19-strong sukuk pipeline by year-end, its chief executive Badlisyah Abdul Ghani said yesterday.
Badlisyah said on the sidelines of the London 2009 Sukuk Summit that the string of deals involves several companies around the world, reports Reuters (July 4, 2009).
In March, Badlisyah said CIMB Islamic would raise US$2.5 billion (RM8.83 billion) through its intended sukuk sales.
Sukuk or Islamic bonds are underpinned by tangible assets and do not pay interest. Sukuk volumes fell 56 per cent in 2008, from the previous year, hit by the global liquidity crunch, ratings agency Standard & Poor's said.
The London-originating report said Badlisyah was optimistic about the growth prospects for the Islamic finance market, adding that CIMB Islamic was poised to soon raise US$1 billion (RM3.53 billion) via a five-year sukuk for a Middle East firm. He declined to name the CIMB Islamic client, which will place the debt privately.
Badlisyah said the bond was due "very, very soon" and he was very sure it would be fully subscribed by private investors. It would be one of the most significant Islamic corporate issuances in 2009, he said.
CIMB Islamic is part of CIMB Group, which is listed on the Malaysian stock exchange through Bumiputra-Commerce Holdings Bhd. It is Malaysia's No. 2 lender and Southeast Asia's fifth-largest bank by assets.
Badlisyah is optimistic about growth prospects for the Islamic finance industry, despite of the global economic slow down. He expects the industry - including the sukuk market - to grow at a double-digit rate this year.
"People are becoming aware of Islamic finance. Because of the crisis people are now asking what Islamic finance can provide them with," he said.
"Corporates who had never given a single thought about looking at Islamic finance, are actually coming to ask questions. It started last year."
He said European companies had enquired about tapping the Islamic market to raise capital.
While countries like the UK have changed tax rules and adjusted legal frameworks to facilitate Islamic finance, US law already lent itself to this, Badlisyah said.
"I am optimistic about Islamic finance, it is still growing - at a lower rate compared with the last two years - but recessions and crises come and go.
"We will be back to a situation where activities will rebound and I am very optimistic it (Islamic finance) will grow faster after we find stability, because the world is very aware of Islamic finance," he said.

Maybank Islamic aims to secure RM750m in financing

Maybank Islamic Bhd is targeting to secure RM750 million of financing for the next financial year, from its two new products — Commodity Murabahah Term Financing-i (CMTF-i) and Murabahah Term Financing-i (MTF-i).
Its acting CEO Ibrahim Hassan said the launch of the two products, given the current challenges, is part of Maybank's commitment to provide continuous financing access to viable local SMEs as well as support the government's various initiatives to ensure sustainability and growth of businesses during this period.
The new facilities complement the bank's existing Term Financing-i and is an alternative for customers to manage their asset acquisitions and refinancing, he said in a statement yesterday. Both facilities are offered at very competitive profit rates, and is in addition to the 20% stamp duty discount given to the bank's existing financing products.
"We are targeting for both facilities to significantly contribute to our 10-15% growth target in Maybank Islamic's overall financing portfolio for the next financial year."
To date, Maybank Islamic has more than RM7.9 billion in outstanding financing to the business sector, he added. The CMTF-i and MTF-i are term financing facilities based on the Shariah concept of Murabahah (cost plus profit).
Both facilities are designed for asset acquisitions and refinancing of assets such as landed properties, plant and machinery, vessels and commercial vehicles. CMTF-i can also be packaged for working capital and corporate purposes.
CMTF-i and MTF-i adopt the concept of Murabahah, which is a widely accepted global Islamic concept especially by Gulf Cooperation Council Islamic banks.
Customers now have the alternative to choose the underlying asset used when applying for term financing.
For CMTF-i, a specific commodity will be identified and used as an underlying asset for the sale and purchase transaction between bank and customer.
The bank buys the commodity at cost and sells it to the customer at cost plus profit after which the customer will pay the financing amount and the profit to the bank on a deferred payment basis.
Currently, the commodities that are used for CMTF-i are tradeable Shariah-compliant commodities such as zinc, tin, lead, palm oil and wheat. CMTFi is also available in foreign currencies denominations, giving more flexibility to the customers for their domestic and international business operations.
Meanwhile, MTF-i is another method used in providing financing for purchase and refinancing of assets. The underlying asset used for the sale and purchase transaction is the asset to be purchased or the customer's own asset identified for refinancing.

(This story appeared in The Malaysian Reserve on July 2, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Allianz to launch Islamic pension product in 2010

Allianz will launch its first Islamic annuity product next year, the head of its takaful unit said, tapping into a growing number of clients in the Middle East keen to add to their state pensions. It has long been hard for takaful - or syariah-compliant - insurers to sell such products, because of the lack of long-term Islamic bonds with which to match pension liabilities, Abdul Rahman Tolefat said on Wednesday, reports Reuters (July 3, 2009).
The German insurer's unit had lobbied banks to issue long-term debt and unnamed banks had now issued 25-year to 30-year sukuk, Tolefat said at a conference.
"This is really a promising industry, especially in the GCC (Gulf Cooperation Council) - people are looking for private pensions because state pension are not high enough," he said on the sidelines of the conference, the report added.
Allianz was one of the first Western insurance companies to venture into takaful, in which members contribute to a pool of funds which is used to indemnify participants who suffer a loss, much in the same way as with a mutual insurer.
Allianz Takaful already has a pension product which pays out over a pre-agreed number of years, but annuities that guarantee income until death are still an untapped market.

AFB sees funded assets growing to RM1bil

Asian Finance Bank Bhd (AFB) expects its funded assets to grow to RM1bil by the year-end from RM600mil currently. Chief executive officer Datuk Mohamed Azahari Kamil said its funded assets were more than RM100mil when he took over last August. He said his predecessor had done a very good job in laying all the groundwork for the current team to build on, reports The Star.
“There are several deals in the pipeline with various companies from different sectors such as plantations, independent power producers, sales and lease of aircraft, and oil and gas,” he said at the signing ceremony between AFB and Lembaga Tabung Haji (LTH), the Malaysian newspaper reported.
AFB yesterday signed a financing facility agreement for a Tawarruq term financing-i of RM65mil with TH Indo Industries Sdn Bhd, a wholly-owned subsidiary of LTH. AFB is also the first foreign bank to be appointed LTH’s deposit collection agent.
Azahari said the Tawarruq term financing for TH Indo was for working capital and was a short-term loan of about a year.
“We are committed to the Government to help stimulate the economy by continuing to provide funding to government-linked companies in need of financing facilities for their business expansion, particularly in the Middle East,” he said.
Apart from growing its assets, AFB is also keen on growing the number of retail outlets and product expansion. The bank currently has two branches locally and a representative office in Jakarta. The bank is expected to increase the number of branches in Malaysia to between five and seven in the next two to five years.
“We are conducting feasibility studies to set up a branch in Kuching. Hopefully, this branch will be ready by the year-end,” Azahari said, adding that the bank was also in the midst of setting up a representative office in Brunei.
To a question, Azahari said it was “currently in talks” with several takaful companies hoping to distribute Islamic insurance, and other companies for distribution of more third party products.

Sykt Takaful aims to be largest player

SYARIKAT Takaful Malaysia Bhd (STMB), which has RM4 billion in assets, aims to be the largest takaful insurer in the country in terms of assets within two years.
Group managing director, Datuk Hassan Kamil, said currently, STMB was in second position after Etiqa Takaful Bhd, which has 400,000 policyholders.
He said the company hoped to sign up at least 10 per cent more policyholders within a year of the launch of the one-stop Takaful myDesk in collaboration with Lembaga Tabung Haji.
"Through the Takaful myDesk, the company also hopes to achieve approximately RM1 million worth of contributions, also within the first year of operations," he told reporters after the launch of Takaful myDesk in Kuala Lumpur today.
Hassan said the contributions were expected to be much higher because the customers could also renew their motor policies, buy Takaful mySiswa (education plan) and Takaful myRawat (health insurance in preparation for them to go on haj).
He said the collaboration would also boost its presence with the establishment of Takaful myDesk at selected Tabung Haji (TH) branches nationwide in addition to its present 56 branches.
The TH branches are in Jalan Tun Razak (Kuala Lumpur), Penang, Pasir Puteh (Kelantan), Bagan Serai (Perak), Kuala Pilah (Negeri Sembilan), Kota Tinggi (Johor) and Bentong (Pahang), he said.
"It's a cost-effective distribution network. The partnership allows us to market our products through TH branches," he said.
Under the agreement, Hassan said, STMB would provide facilities such as computers, while TH the space to set up Takaful myDesk.
"We have been studying this proposal for the last six months where we actually identify together with TH the locations where we feel will have the maximum impact," he said.
Hassan said the set-up of MyDesk would be in stages. The TH Jalan Tun Razak branch started operation on June 1 while the Penang branch will commence on August 3.
"Hopefully in the next six months we will be able to cover all the locations," he said.
He said the cost was minimal because technically, what was needed was a computer and the connectivity.
"So, the person sitting at the desk will be online with our takaful system at the head office.
"They can actually issue the certificate and receipts on the spot," he said. - Bernama (22 June 2009)