BIMB issuing 175.4m new shares to Tabung Haji

BIMB Holdings Bhd has proposed a restricted issue of 175.4 million new ordinary shares of RM1 each to Lembaga Tabung Haji (LTH) to raise RM175.4 million.
The shares, representing 16.44% of the enlarged issued and paid-up share capital, will be issued at RM1 each and used to fund a capital raising exercise by its 51% subsidiary Bank Islam Malaysia Bhd (Bank Islam).
In an announcement to Bursa Malaysia on April 6, BIMB said the proceeds from the restricted share issue will be utilised to subscribe part of to Bank Islam's proposed issuance of 540 million Islamic convertible redeemable non-cumulative preference shares of RM1 each (CRNCPS).
By virtue of BIMB’s 51% shareholding in Bank Islam, BIMB’s is entitled to 275.4 million units of CRNCPS. It plans to subscribe 175.4 million units with cash and the remaining 100 million units via RM100 million cash proceeds arising from the redemption of an existing subordinated Mudharabah financing facility granted by the company to Bank Islam, subject to Bank Negara Malaysia's (BNM) approval.
BIMB said Bank Islam has developed a strategic capital management plan involving a capital injection of up to RM540 million to enhance Bank Islam Group’s capital base and improve its risk-weighted capital ratio (RWCR).
"Bank Islam and its subsidiaries’ RWCR as at 31 December 2008 stood at 13.08%. The capital raising will strengthen its balance sheet during and beyond the current economic downturn. Provided the proposed CRNCPS obtains, amongst others, BNM's approval for qualification as Tier 1 capital, the RM540 million to be raised from the proposed CRNCPS will improve Bank Islam Group’s core capital ratio from 11.32% as at 31 December 2008 to 15.84% and RWCR to 17.26% after the completion of the proposed Bank Islam capital raising" said BIMB.
Currently, LTH holds 373.67 million BIMB shares, representing a 41.92% equity interest. LTH has indicated its intention to subscribe to the proposed restricted issue, which will lift its shareholding to 51.47% and trigger a mandatory general offer.
"LTH has no intention of undertaking a mandatory offer and is seeking an exemption from the obligation to extend a mandatory offer," said BIMB. — By Lee Cherng Wee
(The Malaysian Reserve, Apr 7, 2009, p2)

Bai Inah not contrary to Islamic banking

By HABHAJAN SINGH
AFTER reversing High Court judge Datuk Abdul Wahab Patail's judgment on Al-Bai Bithaman Ajil (BBA), a widely used Shariah enabler in Islamic financing, the Court of Appeal last week also overturned a judgment on the concept of Bai Inah.
Last Wednesday [Apr 1, 2009], the Court of Appeal ruled that Bai Inah, the concept of sale with an imediate repurchase widely used for personal and corporate financing, is a valid transaction, overturning Abdul Wahab's contention that the application of the Bai Inah contracts were against Islamic banking regulations.
The Court of Appeal bench was made up of judges Datuk Md Raus Sharif, Datuk Abdull Hamid Embong and Datuk Ahmad Maarop — the same bench that had delivered what would be a much discussed judgment just the day earlier.
They had earlier delivered the ruling in the case of Bank Kerjasama Rakyat Malaysia Bhd v Fadason Holdings Sdn Bhd and three others.
It was also the same bench that delivered the BBA judgment on March 31. As in the earlier BBA judgment, this ruling will also see local Islamic financial institutions breathing a lot easier now that the matter has been clarified and the Shariah concept cleared for use.
"This judgment will see Bank Rakyat letting out a huge sigh of relief. They have a huge portfolio wrapped around the Bai Inah concept," a banker with a local Islamic bank told The Malaysian Reserve. "We are talking about financing, including personal financing, running into billions of ringgit," he added.
Since Abdul Wahab's string of judgments, mostly dated July 18, local Islamic banks have been rattled on the point of whether their contracts are Shariah-compliant, a key element that has to be observed diligently in any Islamic finance transaction or contract.
These have revolved around the concepts of BBA and Bai Inah, both heavily used by various Islamic financial outfits on the local front, but rejected by Shariah scholars in most jurisdictions in the Middle East and some other parts of the world.
In this most recent case, Khairuddin Abd Ghani from Amir Ruhana & Khairuddin appeared for Bank Rakyat while the respondents were represented by S L Tan of SL Tan Associates.
The court is expected to deliver a written judgment later. On March 31, the same bench had unanimously reversed Abdul Wahab's judgment that BBA contracts were contrary to Malaysia's Islamic banking regulations in Bank Islam Malaysia Bhd v Ghazali Shamsuddin & two others, and nine other cases.
The Malaysian Reserve first reported on Abdul Wahab's BBA judgement on Sept 8, 2008, sending shockwaves through the local Islamic banking fraternity as they began deciphering its impact. Until the news broke, many Islamic finance bankers and lawyers had not had the chance to read Abdul Wahab's 54-page written judgment dated July 18, but which was made available to lawyers involved in the case only sometime in August.
In Bank Rakyat's case, the cooperative bank is claiming from Fadason and three others the sum of RM2.47 million, as at 2004, being the balance from a RM10 million facility granted under the Bai Inah concept.
On the concept of Bai Inah, Abdul Wahah wrote that it is a combination of two separate agreements, the first being the Al-Bai, meaning a sale by the financier to the client, and the second being the buyback by the financier from the client. The purchase price paid by the financier under the second agreement and the deferred payments under the first agreement provides the client with the immediate funds that he desired, and the facility to pay back over a period of time, he added.
In this case, the facility was provided under the Bai Inah concept by the bank selling five blocks of shares quoted on the stock exchange for RM12.31 million (being the sale price) to be paid by the clients in 18 monthly instalments.
On the same day, the bank purchased from the clients the shares for RM10 million, thus making a profit of RM2.31 million while the client obtained funds amounting RM10 million.
In the earlier High Court written judgment, Abdul Wahab acknowledged that Bai Inah is an acceptable concept as it is approved by Bank Negara Malaysia's Shariah Advisory Council.
However, he had deemed the "profit element" as riba, or usury, an element expressly forbidden in Islam.
He wrote: "Such increase or profit may not have been expressed as a percentage but as a sum, but it is no less riba in a usurious loan. "Upon the facts of this case, the foregong reasoning leads to the conclusion that the Bai Al-Inah transaction as impleented contains the element of riba, an element not approved by the Religion of Islam."

(This story appeared in The Malaysian Reserve on Apr 7, 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)

Bank Islam consumer lending rising

BANK Islam Malaysia Bhd expects its consumer lending to grow by at least 10% in its current year ending June 30 (FY09) from 3.9% in FY08, driven by the innovative features it has incorporated in its products. Its projected growth is higher than the industry average for conventional consumer banking, which is expected to be between 2% and 3% this year, reports The Star.
Bank Islam is one of two full-fledged Islamic commercial banks in the country. The other is Bank Muamalat (M) Bhd.
"While we are concerned about the economic outlook and, hence, demand for financing, we believe that there is still enough to go around," consumer banking group head Khairul Kamarudin said in an interview published on April 6.
Bank Islam’s efforts in incorporating innovative features in its products, together with more aggressive marketing, would help it capture a wide customer base, he said. For example, its mortgage financing product, the Baiti Home Financing-i, allows customers to skip repayments every November and December, the report said.
Last year, Bank Islam also introduced a special mortgage financing scheme for individuals like fishermen and hawkers who would like to buy homes but do not have the relevant documents like payslips. The scheme is guaranteed by a RM50mil fund to be managed by government-owned Syarikat Jaminan Kredit Perumahan Bhd.

World’s biggest Islamic bank in the offing

The Bahrain-based AlBaraka Banking Group (ABG) is holding talks with other parties to set up the world's biggest Islamic bank before the end of this year, a senior Al Baraka official said.
In an interview with CNBC Arabiya, Adnan Youssef, CEO of Al Baraka Banking Group, said that its chairman Sheikh Saleh Kamel is heading an alliance to launch the world's biggest Islamic bank before the end of this year, with an initial public offering of US$3 billion (RM10.94 billion), according to a report by Emirates Business on Apr 1.
"We have already completed the necessary research for launching the Islamic bank and there are current discussions between Sheikh Saleh Kamel and investors to prepare for the public offering," said Adnan Youssef, who is also the chairman of the Union of Arab Banks.
Under the current economic climate, news reports said Sheikh Saleh Kamel did not withdraw or pull back but on the contrary, he is accelerating the finalisation process. "The Islamic banking industry needs this investment at such times," he added. The mega bank announced last year will have an initial capital of US$10 billion through a number of initial public offerings and private stock options.
In March, Moody's said Islamic financial institutions have been more resilient to the crisis than their conventional counterparts because direct investment in sub-prime assets is banned under Shariah law.
It was reported that a group of Gulf banks and investors planned to raise US$9 billion by selling shares in a planned Islamic investment bank, which will tap the rising liquidity in Muslim nations.
In June 2008, news reports quoted Sheikh Saleh as saying that the bank, tentatively named Ummar Bank, will have a paid-up capital of US$11 billion, of which US$2 billion will be raised via a private equity placement.
The new Bahrain-based Islamic investment bank was then reportedly seeking to raise as much as US$11 billion to start projects in all Muslim countries. With the emergence of better capitalised Islamic banks in the Middle East, bankers believe that consolidation is bound to take place, both locally and globally. - (The Malaysian Reserve, APril 2, 2009, p9)

Malaysia's Court of Appeal reverses High Court BBA ruling

By Habhajan Singh
The Court of Appeal had on Mar 31 reversed an earlier High Court decision that Al-Bai Bithaman Ajil (BBA) contracts were contrary to Malaysia's Islamic banking regulations.
The move will certainly be a relief to local Islamic banks that had earlier feared a potential spike in defaults of Islamic contracts, especially for home financing.
The unanimous decision in the appeal in the Bank Islam Malaysia Bhd v Ghazali Shamsuddin & 2 Others, and nine other cases, would mean that Islamic banks need not worry about the possibility of a string of defaults in BBA-based financing on the basis that the facilities are not Shariah-compliant.
In Tuesday's [Mar 31, 2009] appeal, Bank Islam Malaysia Bhd (Bank Islam) had 10 cases bundled together in the appeal before Court of Appeal judges Datuk Md Raus Sharif, Datuk Abdull Hamid Embong and Datuk Ahmad Maarop.
The Malaysian Reserve first reported on Sept 8, last year on the BBA judgment by High Court judge Datuk Abdul Wahab Patail, that sent shockwaves through the local Islamic banking fraternity as they began deciphering its impact.
Before that, many Islamic finance bankers and lawyers had not seen Abdul Wahab's 54-page written judgment dated July 18, but which was made available to lawyers involved in the case only sometime in August.
Upon winning the appeal, Bank Islam yesterday issued a two-paragraph statement saying: "Customers of Bank Islam and the public at large can now take comfort from the certainty that Bai Bithaman Ajil (BBA) contracts are valid and binding.
"This follows the unanimous decision by judges of the Court of Appeal on March 31, 2009, during a proceeding involving Bank Islam. The said decision reaffirmed that Bank Islam's practices in relation to BBA contracts are Shariah-compliant and valid.
"The Court of Appeal also reiterated that a BBA contract is a sale transaction and therefore must not be compared to a loan transaction."
Bankers at outfits like Maybank Islamic Bhd, CIMB Islamic Bhd and RHB Islamic Bank Bhd were jolted by Abdul Wahab's ruling that the application of the BBA contracts in Arab Malaysian Finance Bhd vs Taman Ihsan Jaya & 2 Others (2008), and 12 other cases, were contrary to the Islamic Banking Act 1983 (IBA).
Abdul Wahab had argued that since some BBA contracts were structurally faulty, defaulters need not pay more than the original financing amount that they received, depriving banks of the profit they would have otherwise booked from the transaction.
Bankers feared that this could mean that current BBA financing clients would only need to pay the facility amount and would escape from paying the profit portion.
BBA is a hugely popular Islamic financing contract in Malaysia, though it is not accepted in many other jurisdictions, including most of the Middle East. In Malaysia, BBA has been the underlying concept for most Islamic financing in the last two decades.
Since Abdul Wahab's judgment, there has been some shift away from BBA. Towards the end of 2008, RHB Islamic, for example, completely phased out BBA in favour of the musharakah mutanaqisah concept for its home financing products.
At the full hearing on Tuesday, Mohamed Ismail Shariff from the law firm Skrine appeared as the lead counsel for Bank Islam, assisted by Oommen Koshy and Arief Emran, while Harpal Singh Grewal and Harminder Kaur appeared for one of the respondents. In this instance, the Arab Malaysian Finance Bhd v Taman Ihsan Jaya case proper was not one of the cases before the Court of Appeal.
When contacted, Ismail said the Court of Appeal ruled that the BBA agreement is valid as it is being done now, even without a novation agreement.
Post Abdul Wahab's BBA judgment, some banks were considering including a novation agreement in future BBA contracts as it was cleared by the judge.
"It also ruled that the amount that the bank is entitled to demand upon a default is the balance of the bank's selling price, subject to the bank giving an ibra [CORRECTED] or rebate, upon payment being received or realised," he said.
In the earlier judgment, Abdul Wahab had ruled that the sale element in the BBA is "not a bona fide sale" and had brought into question the profit portion of the facility.
Bank Negara Malaysia (BNM), which regulates the Islamic finance sector, was involved in the hearing as an intervener. It was represented by Karlos Israphil Bendlin from Zaid Ibrahim & Co. Association of Islamic Banking Institutions Malaysia [and not Institut Bank-Bank Malaysia (IBBM) as reported in original TMR 2/4//09 report] had also sent a counsel holding a watching brief.
Technically, the respondents can still appeal to the Federal Court, the highest court of the land. However, initial checks show that this is not likely to happen.
The BBA financing is a contract of deferred payment sale (the sale of goods on a deferred payment basis) at an agreed selling price, which includes a profit margin agreed on by the customer and the bank. Profits in this context is justified since they are derived from the buying and selling transaction as opposed to interest accruing from the principal lent out.

(This story appeared in The Malaysian Reserve on Apr 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)

Salman leave KFH Malaysia

It's official. The ever-approachable and smiling Salman Younis will be leaving Kuwait Finance House Malaysia to head back for an assignment at mothership in Kuwait. Below is KFH's press statement.

Official Statement from Kuwait Finance House (Malaysia) Berhad

Kuala Lumpur, Malaysia, 1 April 2009. Dato’ K. Salman Younis on secondment from KFH-Kuwait has successfully spearheaded the establishment of KFHMB in 2005. Subsequently, he was appointed as the Bank’s Managing Director and Chief Executive Officer. With the growth and achievements of the Bank over the last three and a half years, Dato’ Salman will return to the Head Office in Kuwait to assume wider responsibilities. Dato’ Salman will relinquish his position as Chief Executive Officer of KFHMB officially on 1 June 2009, but will continue to serve on the Board of KFHMB.
With immediate effect, Mr Ab Jabar Ab Rahman, Deputy Chief Executive Officer will be Acting Chief Executive Officer of KFHMB. He has extensive experience in the banking sector, having been in the industry for 30 years. As one of the pioneers of KFHMB, Mr. Jabar joined the Bank as Director, Commercial banking, in July 2005. He was then promoted to Chief Officer in March 2007. His portfolio was widened to include Commercial, Retail and Consumer Banking, with his promotion to Country Head on 18 September 2007. Mr. Jabar was appointed Deputy Chief Executive Officer on 1 August 2008.

Bursa to launch platform for Islamic short-selling

Malaysia's stock exchange plans to launch a platform to facilitate regulated Islamic short-selling and hedge fund activities towards the end of the year, the bourse's head said on Mar 30, reports Reuters.
Short-selling — the sale of borrowed stock with a view to buying it back more cheaply later — is controversial among Islamic scholars, as some believe that sharia does not permit selling what one does not own.
Bursa Malaysia is still working out the platform's structure, but one way to enable Islamic short-selling is for investors to buy — instead of borrowing — a stock by paying a fraction of the stock price and executing a simultaneous agreement to sell it back to the seller at a later date, the report added.
It quoted Bursa Malaysia chief executive Yusli Mohamed Yusoff as saying: "This is being worked on, and we hope to offer an alternat ive way of stock borowing and lending which is sharia-compliant...This will help in bringing in Islamic hedge fund activities. Short-selling is an essential ingredient for capital markets to perform efficiently."
Short-sellers can boost market liquidity and lift returns for fund managers who lend out their shares for a fee.
Eighty-seven percent of securities listed on Bursa Malaysia meet Islamic law standards, which forbid activities such as interest-based lending, gambling, alcohol and tobacco. The practice of short-selling has come under criticism in the West recently, with some politicians saying it has helped to fuel sharp tumbles in the price of shares, particularly for banks reeling from the global credit crisis. The Malaysian stock exchange reintroduced regulated short selling in 2007 after a gap of nearly a decade in an attempt to boost turnover and foreign interest in the domestic market, the report added.