Airbus $100 Million Shariah Bet Signals Gulf Carrier Boom

BLOOMBERG.COM--When Airbus Group NV’s new Islamic plane-leasing fund gets up and running, it will mark the latest milestone for Shariah-compliant finance in an industry growing at the fastest pace since 2011.

Airbus and Jeddah-based Islamic Development Bank will each provide 10 percent of an initial $1 billion in equity for a fund that may grow five-fold in its first two years, according to Dubai-based Quantum Investment Bank Ltd., one of the placement agents for the fund. The vehicle will buy new and used planes and lease them to carriers. Borrowers in the air-transport industry have raised almost $10 billion in Shariah-compliant debt since 2012, data compiled by Bloomberg show.

“All the stars are aligned for this,” Rizwan H Kanji, a Dubai-based partner at law firm King & Spalding LLP, said by phone yesterday. “The airline industry is growing, and we have strength in the Middle East by virtue of the orders from our airlines. And that’s in a region with a lot of Islamic liquidity looking at places to deploy.”

Islamic finance is booming as investors looking for vehicles that adhere to the religion’s ban on interest pour in cash. Shariah banking assets will double to $3.4 trillion by 2018 from 2013, according to Ernst & Young LLP. The airline industry is forecast to grow 5.9 percent this year, the fastest since 2011, with Middle Eastern carriers expanding 13 percent, according to a June 2 report from the International Air Transport Association.

Sukuk Demand

The Gulf Cooperation Council has become the most important market for wide-body planes in the past decade, with Dubai-based Emirates, Doha-based Qatar Airways Ltd. and Abu Dhabi’s Etihad Airways PJSC racking up hundreds of purchases as they expand their home bases into leading hubs for intercontinental travel.

The Airbus Leasing Islamic Fund targets raising $5 billion in equity and debt over two years with the first tranche due to close in the third quarter. It will be managed by International Airfinance Corp. and will offer jets to carriers based in Islamic states led by those in the GCC and Southeast Asia.

Shariah investors are flush with cash as demand for securities far exceeds supply. A $500 million perpetual sukuk from Abu Dhabi’s Al Hilal Bank PJSC sold yesterday received orders of about $5 billion, according to people familiar with the matter.

Given Islamic investors’ “solid liquidity conditions,” the fund will probably be welcomed, Apostolos Bantis, a Dubai-based credit analyst at Commerzbank AG, said by e-mail yesterday. “The successful story and healthy growth dynamics of GCC-based airlines should provide additional comfort.”

2,000 Planes

The Airbus fund’s success may determine if structures of this kind take off in the airline industry and other asset classes, according to Kanji. The airline industry is heavily exposed to the economic climate, and “the less aircraft are leased, the lower the return could be,” he said.

The Middle East will need about 2,000 new planes through 2032, according to Airbus’s latest global market forecast. Emirates last year made the biggest commercial commitment for planes in history. The carrier ordered 150 planes from Boeing Co. and 50 from Airbus at the Dubai Airshow in November.

“We wanted something more liquid than real estate and felt that transportation would be an ideal asset,” Quantum Chief Executive Officer Idriss Ghodbane said by phone from London. “There’s a lot of Islamic liquidity sitting in the market and looking for better options.”

Read More

OJK Resmi Jadi Anggota Penuh IFSB

Skalanews -Setelah menunggu selama satu tahun, Otoritas Jasa Keuangan (OJK) akhirnya resmi menjadi anggota penuh The Islamic Financial Services Board (IFSB). 

Diwakili Ketua Dewan Komisioner OJK, Muliaman D Hadad, OJK hadir dalam pertemuan lembaga itu di Bandar Seri Begawan, Brunei Darussalam pada 25-27 Maret 2014.

Siaran pers OJK di Jakarta, Kamis (27/3), menyebutkan keanggotaan penuh untuk OJK sebelumnya diusulkan pada pertemuan IFSB pada tahun 2013.

IFSB merupakan organisasi yang menetapkan standar internasional di bidang jasa keuangan syariah, yang mendorong terwujud dan meningkatkan tingkat kesehatan dan stabilitas industri jasa keuangan syariah (JKS) dengan mengeluarkan standar kehati-hatian yang bersifat global.

IFSB juga menentukan prinsip-prinsip panduan untuk JKS, yang didefinisikan secara luas untuk mencakup perbankan, pasar modal dan sektor asuransi.

Selain itu IFSB juga melakukan penelitian dan mengkoordinasikan inisiatif isu-isu industri terkait, serta menyelenggarakan diskusi informal, seminar dan konferensi untuk regulator dan pemangku kepentingan industri.

IFSB beranggotakan 185 anggota termasuk IMF, World Bank, Bank for International Settlements (BIS), IDB, ADB dan 119 otoritas dan pelaku pasar di industri keuangan yang tersebar di 45 negara.

Sebagai anggota penuh IFSB, OJK tidak hanya terkinikan dengan penerapan standar internasional sistem keuangan syariah di berbagai anggota. Tapi juga dapat memberikan masukan terhadap aturan-aturan prudential di bidang keuangan syariah, yang akan menjadi pedoman bagi anggota IFSB.

The Council Meeting IFSB di Brunei, merupakan pertemuan akbar yang dilangsungkan bersamaan dengan pertemuan tahunan (General Assembly Meeting) yang dihadiri oleh 185 anggota, serta seminar internasional keuangan Islam, kuliah umum dan evaluasi keanggotaan IFSB.

Dengan menjadi anggota penuh IFSB, OJK memiliki akses luas untuk memperoleh bantuan teknis dalam penerapan aturan-aturan prudential internasional yang tidak hanya di industri perbankan, namun juga di industri pasar modal dan asuransi.

Sebagai anggota baru, OJK telah diminta untuk berbicara di Summit Meeting di Mauritius bulan Mei 2014, yang mengambil tema "New Markets and Frontiers for Islamic Finance: Innovation and the Regulatory Perimeter". (Ant/DS)

Read More

Bank of Korea joins Islamic Finance Body IFSB

ALARABIYA.NET--South Korea’s central bank has joined the Islamic Financial Services Board (IFSB), one of the main standard-setting bodies for Islamic finance, as regulators across Asia build closer ties to the growing industry.

Guidelines issued by the Kuala Lumpur-based IFSB are gaining prominence as the industry takes a greater share of the banking sector in several majority-Muslim countries and expands into new markets.

The Bank of Korea is the 59th regulatory body to join the IFSB, bringing total membership to 184, joining the likes of the central banks of Luxembourg and Japan and the monetary authorities of Hong Kong and Singapore.

The move could augur stronger links between South Korea and Islamic finance hubs in southeast Asia.

South Korea’s Export-Import Bank of Korea already has a bond program in Malaysia that can issue Islamic bonds, or sukuk, although it has yet to tap the market.

This week, Hong Kong lawmakers passed a bill that will allow the AAA-rated government to raise around $500 million via sukuk, or Islamic bonds.

In a separate statement, the IFSB also adopted a revised guideline on the supervision of Islamic finance institutions, helping tighten regulatory oversight of industry practices.

The latest update complements stricter Basel rules, agreed globally to make banks safer after the 2007-09 credit crisis.

In the past two years, the IFSB has issued separate guidelines on liquidity risk management, stress testing and capital adequacy.

Read More

Islamic Finance Assets to Reach USD2.1trn by end-2014

ZAWYA.COM--JEDDAH - Islamic finance industry will continue to grow driven by both demand and supply factors, and further facilitated by government agencies and financial regulators, KFH -Research, a subsidiary of Kuwait Finance House Group KFH -Group, said in a report.

The report, which focuses on 2014 Islamic finance expectations, forecasts that Islamic finance industry will continue to draw tremendous double digit growth rates across all sectors. 

Moreover, the report forecasts that the total Islamic finance assets to reach $2.1 trillion by the end of 2014, and the total asset of Islamic banking sector to reach $1.6 trillion.

In 2014, gross contributions of the global takaful industry are expected to surpass the $20bln mark. The growth opportunities for the global takaful industry in 2014 and beyond are optimistic on the back of several economic, financial and socio-demographic trends. A number of regulatory developments and government policies that have been put in place are expected to spearhead the growth of the takaful and insurance sectors in various markets during 2014. 

Overall, Islamic finance in 2014, is set to experience another increased momentum, particularly in the sukuk market with the issuances by few sovereigns e.g. UK and Luxembourg.

The Islamic banking sector is likely to witness a surge in demand underpinned by greater economic participation of Muslim nations as well as driven by stronger demand from the population towards Shari'a compliant or ethical financing solutions. Instrumental roles played by multilateral organisations and regulatory bodies are expected to further benefit the Islamic banking and takaful industry especially to low-to-medium income customers as financial inclusion objective has been strongly emphasised moving forward.

Thriving interest of key global/regional financial centres in developing Islamic finance, for instance London, Hong Kong, Singapore Luxembourg, further adds weight to the strong prospects of Islamic finance as markets globally look for alternative sources of funding and investment avenues.

The Islamic finance industry's assets are estimated to have amounted to $1.8 trillion as at end-2013, recording an over 16% y-o-y growth. Leading the growth has been the Islamic banking sector which represented an almost 80% share of the global Islamic banking assets in 2013. Among the largest global Islamic banking jurisdictions (excluding Iran) in 2013 are Saudi Arabia which captured 18% of global Islamic banking assets, followed by Malaysia (13%), UAE (7%), Kuwait (6%), and Qatar (4%). In 2014, the Islamic banking sector's assets are expected to reach $1.6 trillion. Advanced Islamic banking markets in the GCC and Asian regions are expected to evolve in greater sophistication in terms of products offerings, as well as from the aspect of regulatory advancement by the financial regulators. On the demand side, Shariah compliant investments and financing products have been dominantly fuelled by a promising economic outlook in the GCC and abundant liquidity flows.

The industry will continue to grow driven by both demand and supply factors, and further facilitated by government agencies and financial regulators.

In a newly released report "Islamic Finance Outlook 2014" by Kuwait Finance House Research Limited (KFHR), the Islamic finance industry is forecasted to continue to chart tremendous double digit growth rates across all sectors, with total industry assets estimated to reach approximately $2.1 trillion as at end-2014. Over the next few years, KFHR foresee the industry's focus in four key spectrums that will take the industry to greater heights:

1) Strengthening of financial stability and enhancement in inter-linkages between Islamic finance jurisdictions

2) Tapping into potential real sector economic activities to expand market share for e.g. by supporting the financing needs of the infrastructural development programmes in GCC and Malaysia

3) Expanding the range of product offerings to appeal a wider customer base e.g. Islamic wealth management products for high net-worth individuals (HNWs) and Islamic trade financing solutions for corporates 

4) Enhancing talent, education and research development to improve on the industry's efficiency and innovative capabilities.

In 2013, the sukuk market, managed to once again breach the $100bln mark in terms of new sukuk issuances to close the year with a total of $119.7bln. However the amount fell 8.77% short of the recorded amount in year 2012. Malaysia once again led the 2013 new sukuk with a 69% share of total issuances, followed by Saudi Arabia at 12%, United Arab Emirates (6%), Indonesia (5%) and Turkey (3%).

The global sukuk market is all set to continue its upward trajectory in 2014 as a number of high profile debut sovereign issuances are expected to take place this year. The sovereign sukuk sector will continue to stoke stakeholders' interest in 2014 as sovereigns including the United Kingdom, Ireland, South Africa, Tunisia, Mauritania, Senegal, Luxembourg and Oman are expected to debut issuances in 2014.

Expectations are also build up on a debut sukuk issuance from the multilateral Asian Development Bank (ADB). Meanwhile, the Islamic Development Bank (IDB) has already announced its intention to issue a $10bln sukuk in the Dubai NASDAQ Exchange in 2014 with plans to continue similar listings on an annual basis.

The Islamic funds segment also registered an 8.4% year-to-date increase in 2013 with total assets under management (AuM) valued at $72.5bln as at 20-Dec-13. A total of 79 new Islamic funds were launched in 2013 with most of the newly launched Islamic funds domiciled Malaysia and Luxembourg.

In 2014, the global Islamic funds industry should benefit from steady global economic recovery which will bolster investor confidence and performance of underlying invested assets. Much of the anticipated recovery will come from the advanced economies, while the growth trajectory of emerging countries will remain stable. In this light, greater investor focus will be placed on policy decisions and reforms in individual emerging economies.

The global takaful industry has experienced strong double-digit growth rates in recent years with worldwide gross takaful contributions estimated to have amounted to almost $19.87bln as at end-2013, reflecting a more than 15% y-o-y growth while recording an impressive 18.1% CAGR during the last 5 years (2007-2012). Saudi Arabia and Malaysia continue to drive the global takaful industry being the two largest takaful markets in terms of total gross contributions.

© The Saudi Gazette 2014

Read More

Morocco Weighs Pursuing $1.7 Trillion Industry: Islamic Finance

BLOOMBERG.COM--Morocco plans this year to allow Islamic banking for the first time as the only North African nation with an investment-grade rating at Standard & Poor’s seeks to tap the $1.7 trillion industry.

The country’s cabinet approved a draft Islamic finance bill on Jan. 16, according to Abdeslam Ballaji, a lawmaker who worked on the proposed legislation and a member of the ruling party. The draft, which also regulates Islamic banks and allows for sukuk sales, is pending parliamentary approval and may be enacted within five months, he said last week.

Demand for financing that complies with Islam’s ban on interest is accelerating worldwide, with assets expected to climb to $3.4 trillion by 2018 from about $1.7 trillion last year, according to Ernst & Young LLP. More than 95 percent of Morocco’s population of 34 million back the introduction of banking that adheres to Shariah, according to Said Amaghdir, secretary general of the Moroccan Association of Participative Financiers, an Islamic finance business association.

“Given the choice, Muslim retail customers on the street generally prefer to bank Islamically, even if there are higher costs,” Khalid Howladar, a senior-credit officer at Moody’s Investors Service, said by phone from Dubai yesterday. “Islamic banks historically have tended to grow at twice the rate of conventional banks in Muslim countries, and as such they tend to take a market share from the conventional system.”

Billions Required

The Moroccan Association of Participative Financiers estimates total investment in Shariah-compliant products to reach $7 billion by 2018, provided the law comes into effect by the middle of the year, Amaghdir said by phone yesterday.

“Plans to expand solar and wind energy, tourism and industrial parks will require billions, and the Gulf Cooperation Council will be keener on putting money here when the law is enacted,” he said. The six-nation GCC, which includes Saudi Arabia and the United Arab Emirates, is predominantly Muslim.

Banks may also sell short-term sukuk to fund Islamic subsidiaries, Amaghdir said.

Morocco’s central bank allowed lenders and insurers to sell three Islamic products in 2007 to help develop the nation’s financial industry. The country is “almost” ready to sell its first sukuk, Prime Minister Abdelilah Benkirane said in October.

Regional Competition

“We can’t afford to drag our feet any longer because regional competition for the Islamic finance pool is heating up, not just from our Muslim neighbors,” Ballaji, the lawmaker, said in a phone interview Jan. 20.

The U.K. plans to sell debut Islamic bonds this year as Prime Minister David Cameron seeks to revive a blueprint that’s been stalled since at least 2007. The Hong Kong government this month gazetted legislation to allow the sale of Shariah-compliant notes.

Moroccans may be misinformed about the benefits of Islamic banking, Ismail Douiri, co-chief executive officer of Casablanca-based Attijariwafa Bank, said in May.

“Islamic finance is often portrayed as low-cost type of finance,” Douiri said. “Islamic finance is not charity. One should not expect financing costs to decline.”

Shariah-compliant products are typically more expensive when they’re first introduced, Howladar of Moody’s said.

“Islamic products tend to come at a premium, because the creation of the products requires substantive investment,” he said. “Orthodox customers are willing to pay more to bank Islamically. Eventually, in the face of competition, those costs fall and are comparable to conventional products.”

To contact the reporters on this story: Dana El Baltaji in Dubai at delbaltaji@bloomberg.net; Souhail Karam in Morocco at skaram5@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

Read More

Dubai likely to be next leader in Islamic economy evolution: Thomson Reuters

GULFNEWS.COM--Dubai: While there are various major centres of Islamic economy — all in Asia — Dubai could emerge as the leader in the next phase of the evolution of Sharia compliant sectors, including finance and insurance, Halal food and lifestyle, and travel, according to a summary of Thomson Reuters’ first State of the Global Islamic Economy Report 2013, which will be released on Monday at the first Global Islamic Economy 

Summit in the emirate.

Malaysia, considered to be the strongest centre of an all-round Islamic economy sector, may have reached a point of “stagnation” and so, Dubai, with a clear vision of establishing itself as the centre of a global Islamic economy, looks likely to be the one with the biggest potential, says the Report summary. The other major centres are Saudi Arabia, Turkey and Indonesia.

On October 5, His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, unveiled a strategic plan for “capital of Islamic economy” for the emirate. The plan includes seven key pillars and 46 strategic initiatives to be implemented within three years.

Long-term benefits

Sami Al Qamzi, Director General of Dubai’s Department of Economic Development and vice chairman of the Supreme Committee of the Dubai Islamic Economy, told Gulf News that the aim of Shaikh Mohammad’s initiative to make Dubai a global capital for the Islamic economy is to bring long-term benefits to the economy as a whole.

“We expect it to gather momentum over time,” Al Qamzi said. “Dubai, being a pioneer in many forward looking initiatives, is looking to capitalise on its inherent strengths to develop a new economic paradigm that would not only add value to our economy but also potentially offer solutions to global economic issues.”

Infographic

Global Islamic economy

Globally, opportunities for Islamic capital lie not just in furthering Islamic Finance, which is now well established across geographies, but also, identifying other sectors of the economy, including Halal food and lifestyle and Muslim travel, the potential of which could make the Sharia compliant economic system a competing alternative, according to the report summary.

With Muslim consumer expenditure globally on food and lifestyle sectors around $1.62 trillion (Dh5.9 trillion) in 2012 and expected to reach $2.47 trillion by 2018, the report sees that as a potential core market for the Halal food and lifestyle sectors.

Diversified economy

And Dubai emerging as a hub in Halal and lifestyle as well as Muslim tourism sectors is highly likely because of the way it has diversified its economy.

In two years Dubai could make a trusted name for itself in the Halal industry, according to Jasem Mahadik, project Manager at Al Maali Trading and Consultancy, an Islamic Finance solution provider.

Dubai’s development of a strong network of logistics facilities and services for the production of Halal products could make the emirate a global hub for this industry, he said.

“In a very short time Dubai will establish a centre for Islamic economy standard and certification which will make the emirate a reference for the issuance of global governance standards,” Mahadik added.

The major sectors of Islamic economy include Islamic finance and Insurance, Halal food, and Islamic values influenced travel, clothing, pharmaceutical/cosmetics and media recreation.

“While these Islamic economy sectors are potentially large in size, the synergistic opportunities for growth and investments are larger and could even be a necessity in true realisation of their individual visions,” the report’s author Sayd Farook, Global Head Islamic Capital Markets at Thomson Reuters said in the statement released today.

Source: http://gulfnews.com/business/markets/dubai-likely-to-be-next-leader-in-islamic-economy-evolution-thomson-reuters-1.1259266

Read More

DFSA Signs 26 Agreements With EU Regulators

Continuous collaboration with international regulators has been at the forefront of the Dubai Financial Services Authority’s (DFSA’s) engagement objective this year, and as such, the DFSA has entered into 26 supervisory co-operation agreements with European Union (EU) and European Economic Area (EEA) securities regulators. Under these agreements, each regulator agrees to help each other supervise fund managers operating across borders, between the Dubai International Financial Centre (DIFC) and Europe.

 

The DFSA negotiated the agreements with the European Securities and Markets Authority (ESMA). The DFSA’s Chief Executive Mr Ian Johnston signed the Memoranda of Understanding (MoUs) with 26 EU regulators last month. The EU signatories to these agreements are: France, UK, Netherlands, Ireland, Portugal, Spain, Italy, Luxembourg, Cyprus, Sweden, Finland, Denmark, Norway, Iceland, Liechtenstein, Hungary, Malta, Lithuania, Greece, Belgium, Bulgaria, Poland, Estonia, Latvia, Czech Republic and Romania.

 

The agreements under the MoUs allow fund managers in the DIFC to manage and market Alternative Investment Funds (AIFs) to professional investors in the EEA under the rules of the Alternative Investment Fund Managers Directive (AIFMD). AIFs include hedge funds, private equity funds and real estate funds. Managing and marketing such funds into Europe will allow DIFC-based fund managers to access a greater pool of investors. It is hoped that with a strong distribution network and a sustainable distribution model, the MoUs will prove beneficial for the industry in the DIFC.

 

Mr Ian Johnston, Chief Executive of the DFSA said: “The DFSA’s efforts to improve cross-border opportunities will further facilitate investment flows and will benefit investors and the funds industry. In addition, it reflects the DFSA’s commitment to enhance the economy of the UAE and Dubai, furthering Dubai’s position as a prominent financial centre.” 

 

The DFSA already has in place bi-lateral agreements with 13 of its European counterparts and enjoys strong and close relationships with them ensuring that fund managers are well supervised in the DIFC and in Europe.

Source: http://www.dfsa.ae/WhatsNew/DispForm.aspx?ID=258

Read More

Loan Growth, Profitability and Risk Appetite on the Rise

GULFNEWS.COM--Dubai: Loan growth in the UAE’s banking sector is picking up pace helped by the positive economic growth, improving consumer confidence and declining risk aversion and non-performing loans.

According to the The Banker’s “Top 1000 World Banks 2013” report, the UAE banking sector’s net assets have risen more than ten-fold from $49 billion (Dh180 billion) in 1995 to $509 billion in mid-2013. The UAE banking sector directly employs more than 34,400 staff as of mid-2013, more than doubling since 2000.

Financial results of the UAE banks for the first nine months of 2013 show, most banks stopped the sharp deleveraging that followed the financial crisis and the loan growth has started picking up momentum.

Large banks have reported high single digit growth in the first nine months of the year. While Emirates NBD’s customer loans as at September 30, 2013 (including Islamic financing) amounted to Dh234.4 billion, an increase of 7 per cent from the end of 2012 National Bank of Abu Dhabi’s (NBAD) loans increased 5.2 per cent to Dh182.5 billion. NBAD’s total assets in January-September period increased 14.8 per cent to Dh345.1 billion while loans increased 10.9 per cent in the same period.

“A difficult period of balance sheet repair has been completed. Banks went through a period of deleveraging and provisioning. With stronger balance sheet and sufficient liquidity in the system, the UAE’s banks are ready to increase lending,” said George T Abed, senior counsellor and director for Africa and Middle East of Institute of International Finance (IIF).

Confidence

A number of smaller banks too have reported double digit loan growth on an annualised basis. While First Gulf Bank’s loans and advances grew at a year-to-date growth of 10.7 per cent for the first 9 months of the year, Commercial Bank of Dubai reported a loan growth of 11.9 per cent.

“The banking industry is safe and secure in the UAE and the overall confidence in the UAE banks is justifiably strong,” the Governor of the UAE Central Bank, Sultan Nasser Al Suwaidi, said earlier this month.

A decline in the rate of growth of non-performing loans combined with improved liquidity and surge in lending has helped most UAE banks to improve their profitability this year.

“The banks here received strong sovereign support, which helped them to remain highly liquid during the crisis years. While capital levels remained exceptionally high during the period, improving economic activity has helped the asset quality,” said Timucin Engin, Associate Director, Ratings Analytical Financial Institutions at Standard & Poor’s.

Credit rating agency Moody’s Investors Service recently upgraded the outlook for the UAE’s banking sector to stable from negative. The outlook change reflects the continued improvements in the operating environment, as well as the ongoing recovery of the local real-estate market, which Moody’s believes will lead to a decline in non-performing loan levels and an increase in profitability over the next 12 to 18 months.

Restructurings

Moody’s expects declines in the problem loans to gross loans ratio to 8 to 9 per cent range over the outlook period, from a 10.5 per cent average at year-end 2012. While the ongoing real estate market recovery and more cautious underwriting during the downturn period are expected to lead to lower new problem loan formation. Asset quality metrics are also be supported by a reduction in the stock of problem loans due to the increasing volume of settlements, recoveries and commercial restructurings.

Rating agencies expect that the increase in net income will provide UAE banks with the internal capital generation capacity necessary to support asset growth over the outlook period, whilst maintaining their strong Tier 1 capital levels, which stood at around 16 per cent as of June 2013.

“In addition to the shock-absorption capacity provided by robust capital metrics, we also anticipate that the banking system will maintain its strong funding and liquidity profile. The cash-rich federal government and stronger Abu Dhabi-based government related entities will continue to remain a key and stable source of deposits, limiting the system’s dependence on confidence-sensitive market funding.” said Khalid Howladar Vice President — Senior Credit Officer at Moody’s

Despite the upgraded outlook, Moody’s warns that exposures to large corporate restructurings and government-related issuers (GRIs) will continue to pose asset-quality risks, particularly for Dubai-based banks.

Read More

U.A.E. Nears Debt Listing Rules to Boost Sales: Islamic Finance

BLOOMBERG.COM--The United Arab Emirates is in the final stages of creating debt issuance and listing regulations that will help develop a domestic credit market and encourage the sale of Islamic bonds, the market regulator said.

The Securities and Commodities Authority, or SCA, has circulated draft rules that for the first time treat sukuk and non-Shariah compliant debt separately. The regulator is seeking feedback from market participants by the end of the year and “hopes” to enact the regulations early in 2014, according to Obaid Al Zaabi, director of research and development at SCA.

The U.A.E., the second-biggest Arab economy, must develop local debt markets to help state-run and private companies find alternatives to bank loans, Central Bank Governor Sultan Al-Suwaidi said last month. The country is the only one in the six-nation Gulf Cooperation Council that doesn’t have a domestic, local-currency debt market.

“The new sukuk and bond regulations are built around giving more room for local issuance to be listed in local markets, instead of going abroad,” Al Zaabi, who is leading the team that developed the sukuk regulation, said by phone yesterday. “We’re opening the door for them and trying to make the regulations more durable and more feasible.”

Islamic Hub

Global issuance of Islamic bonds, which comply with the religion’s ban on interest, will climb to $60 billion next year, Moody’s Investors Service said in a report last month, up from about $51 billion in 2013. The rules will boost issuance and listing of sukuk in the U.A.E., Al Zaabi said.

“Sukuk essentially is not considered as a debt certificate, but rather a certificate of ownership,” Al Zaabi said. “The requirements, in terms of disclosure, listing, and trading, totally differ to conventional bonds. So the SCA management saw it was a good idea to make it separate.”

Dubai, one of seven sheikhdoms that make up the U.A.E. and home to the country’s second-largest stock market, announced a plan this year to become capital of the global Islamic economy. The emirate’s ambition is one of the incentives for the SCA to put the rules in place as soon as possible, Al Zaabi said.

Rival Malaysia

Dubai and the U.A.E. have a lot of catching up to do before domestic sukuk issuance rivals that ofMalaysia or Saudi Arabia. The Asian country’s issuers have sold about $168 billion, or two-thirds of all outstanding Shariah-compliant bonds, while Saudi Arabia has about $22 billion of domestic sukuk outstanding, according to Moody’s.

The U.A.E.’s debt rules will bring listing and issuance in line with best practices, Al Zaabi said. Clifford Chance LLP was appointed to develop the sukuk regulations, while Bracewell & Giuliani LLP worked on the bond rules, he said.

“The upgraded rules for both bonds and sukuk will cover all aspects of industry requirements,” Al Zaabi said. “From the application onwards there will be continuous disclosure requirements.” (Samuel Potter)

Read More

Islamic Trade Finance to Emerge as the Preferred Choice in Emerging Markets

EY.COM--DUBAI, 1 JUNE 2013: According to EY’s Global Islamic Banking Center, Islamic trade finance could provide new opportunities and become the preferred choice for emerging rapid growth markets (RGMs) such as Turkey, Indonesia Malaysia, Qatar, Saudi Arabia and the UAE. RGMs are emerging as hot spots for global business and they promise to permanently alter the global trade scene over the next 10 years. Many of these markets already have strong trade links with other “core” Islamic finance markets, which offer new opportunities for growth for Islamic trade finance.

Ashar Nazim, Partner, Global Islamic Banking Center of Excellence at EY says: “The increase of trade flows to the East and within emerging economies combined with growing interest in Islamic finance, means that Islamic trade finance is now a serious alternative. A constant challenge for business leade

rs is to anticipate and interpret how global trade is changing, while understanding the opportunities and risks it creates. Boards and management of Islamic banks must take note. Trade, technology, culture, labor and capital will integrate at different rates across these markets and need to be anticipated when transforming the financial institution’s trade finance operations.”

RGMs are now an increasingly significant part of the global economy. They will become an even more dominant force in global trade and as a result, businesses are going to have to adjust their strategies to reflect the increasingly regional pattern of world trade and in this context should now start to consider Islamic trade finance.

Gordon Bennie, EY’s MENA Financial Services Industry Leader, says: “Trade will grow between these markets, creating a wide range of new opportunities for them and advanced economies will also benefit, as exports to emerging markets become a rising source of growth. Middle Eastern countries are trading increasingly with other RGMs, reflecting the faster growth in demand from these countries. Banking, insurance and other financial services sectors in these countries will grow as the economies mature and the middle classes expand, offering new opportunities for trade. Demand for more sophisticated financial services is already growing rapidly as wealth levels rise.”

The degree of change in both the scale and direction of trade will have a profound impact on the competitive environment for all companies wherever they are located around the world. Trade will also be increasingly focused around Asia, the Middle East and Africa, suggesting that the key geographical location for companies will change.

Ashar adds: “It makes business sense for global organizations that operate in and trade with many of these rapid growth markets, especially those that are in the Organization of Islamic Cooperation (OIC) or have strong links to the bloc, to seriously look at Islamic trade finance.”

Challenges aheadTo compete in the market effectively, Islamic institutions will need to align their trade finance operations with global common practices. There has to be a clear understanding of how Islamic financial institutions can add value to businesses in their trade functions. Despite the high percentage of Muslim populations in emerging markets, conversion to Islamic trade finance will not be successful without a clear framework that gives businesses a good reason to switch.

Islamic institutions also need to maintain the talent pool that serves these emerging markets and ensure that talent management is an integral part of their business strategy. There is currently a shortage of staff with extensive experience in Islamic markets so this issue needs to be addressed with the industry’s rapid growth.

Islamic banks need to build international connectivity and scalable trade finance platforms that can connect with businesses and financial institutions beyond borders. This could be challenging given the small size and localized nature of most Islamic banks

“The road to Islamic trade finance is not one without obstacles. But if the correct framework is used and awareness about Shari’a compliant initiatives continues to grow, Middle East and North African markets will be able to strengthen their trade focus on the growing Muslim populations in emerging markets. These initiatives have the potential to significantly increase the value and volume of trade of these expanding markets. This is an opportunity that should not be overlooked,” concludes Ashar.

Read More

Malaysia: New Regulations to Boost Market for Takaful

oxfordbusinessgroup.com--An overhaul of Malaysia’s Islamic finance regulations is expected to increase take-up of sharia-compliant insurance (takaful) products, although the new rules could encourage smaller operators to join forces with more established rivals.

New legislation came into effect on June 30, along with parallel laws revamping the operations and regulation of the conventional financial sector. The new Islamic Financial Services Act (IFSA) replaces previous legislation enacted over the past 30 years, strengthening regulatory oversight and boosting industry transparency.

According to a statement from Bank Negara, the central bank, the new rules will provide “a comprehensive legal framework that is fully consistent with sharia in all aspects of regulation and supervision”.

Under the new act, religious advisers will be held legally accountable for financial products. They will also be subject to monetary penalties and could face imprisonment if found to be in breach of the laws.

In the takaful sector, the IFSA will require insurers to separate their life and non-life business lines. Firms that hold composite licences will need to divide their operations within five years.

The new rules are expected to help ensure the rights of takaful consumers, setting out disclosure requirements and mandating that insurers provide a minimum level of information to customers at each stage of the contract process.

“The IFSA will lead to greater consumer protection and subsequently greater confidence in takaful,” Mohamed Rafick, CEO of Munich RE Retakaful, told OBG in an interview in mid-July. “It will also hold takaful companies accountable for their pricing strategies by ensuring that risk funds are sustainable.”

The stringent pricing accountability could put pressure on smaller operators in the industry, Rafick added. They could also face challenges in meeting the new higher capital requirements that are specified by the IFSA.

While there are around a dozen takaful operators in the market, the sector is dominated by a few firms that, between them, account for about 90% of the estimated combined $6bn worth of assets held.

Some of the larger players have expressed interest in acquiring smaller outfits in the wake of the new regulations.

In July, Hassan Kamil, group managing director of Syarikat Takaful Malaysia, the second-largest Islamic insurer, told Reuters his company might be in the market to absorb smaller rivals. “If their portfolio is attractive, we could be buying up business,” he said.

However, analysts are confident that the new regulations will help the sector to expand.

Ahmad Rizlan Azman, CEO of Etiqa Takaful, said the improved regulatory environment, alongside growing public understanding of takaful products, would help the sector to develop into 2015 and beyond.

“Recent reports indicate that the Malaysian takaful industry is expected to grow by 20% per annum for the next two years as consumer acceptance grows and regulatory changes provide a stronger and more stable infrastructure for the shariah-compliant insurance industry,” he told a conference in Kuala Lumpur in late June.

However, the takaful sector still lacks the level of consumer acceptance required to underpin strong growth. Many products in the takaful range, as yet, have limited exposure in the Malaysian market. The penetration rate for life takaful stands at 13%, considerably lower than that of conventional life insurance, at 55%.

According to a recent survey commissioned by Swiss Re, about 30% of Muslims in Malaysia have a good understanding of takaful, while 16.5% hold policies. Though this is a far higher rate than in Indonesia, where only 5% of the population were found to be familiar with takaful and 1% choosing to hold the sharia-compliant product, the survey indicates that more work needs to be undertaken to boost penetration rates.

By tightening up the regulatory structure of its takaful segment, Malaysia will further bolster confidence in both the product and the broader Islamic financial sector and may well set the benchmark for other countries seeking to boost accountability and transparency in their own sharia-compliant markets.

Read More

Key Islamic Finance Body Plans to Screen Products

GULFNEWS.COM--Manama: A major Islamic finance body which proposes industry rules to Islamic lenders said yesterday it plans to monitor Islamic finance products in the absence of a sector watchdog.

The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) "will screen products and services offered by the industry for Sharia compliance", it said in a statement.

The move is aimed to "encourage greater harmonisation of international Islamic finance practices," it said.

The fledgling Islamic finance industry relies for guidance on a patchwork of standard-setting bodies such as AAOIFI, opinions of Islamic scholars and national regulation.

"Although AAOIFI is not taking on a permanent role of industry watchdog, there exists a current huge gap in the market relating to credible Sharia compliance screening of products and services," AAOIFI said.

AAOIFI describes itself as an autonomous corporate body that prepares accounting, auditing, governance, ethics and Sharia standards for Islamic financial institutions and the industry. But it provides product and auditing standards, which are mandatory in seven countries, mostly in the Middle East.

Varied interpretations of Sharia, or Islamic law, have so far blocked the standardisation of rules across regions dominated by different schools of Islam.

The lack of standardisation is seen as a growth constraint as bankers need to design products for different markets and investors are reluctant to invest in products unless they are satisfied about its compliance with Islam. AAOIFI said it would highlight products it sees as non-Sharia compliant to providers and help them meet necessary requirements.

The Islamic finance industry caters to investors who would like to avoid paying or earning interest, which Islam describes as usury.

Read More

Kamil: Islamic Economics Can Speed Up Development

ZAWYA.COM--Saleh Kamil, chairman of Al Baraka Banking Group , has called on Muslim countries to implement the Islamic economic system efficiently to boost their economic and social development.

"We have to understand Islamic economics clearly and implement the system in our societies properly. It would be a gift from us to humanity and would serve as an important means for spreading the message of Islam," he said.

Addressing the 34th symposium on Islamic economics at Jeddah Hilton on Wednesday night, he said: "We as scholars and bank managers have to play our role in projecting the glittering face of Islam.

"The Islamic economics is based on the teachings of God, who knows better the needs of humanity and how to tackle their various problems."

Kamil urged Islamic banks to make sure their operations are successful in realizing the objectives of Islamic economics. "What is our objective? Are we here just to mobilize funds in the name of Islamic banks?" he asked.

The symposium commended Custodian of the Two Holy Mosques King Abdullah's initiative to strengthen the private sector's participation in nation building.

"This will promote economic activities and capital flows among Arab and Muslim countries," said Adnan Ahmed Yousif, president and CEO of Al Baraka Banking Group . He said the symposium would contribute to further strengthening the Islamic banking and finance industry.

The symposium was attended by well-known scholars in the field of Islamic banking, in addition to a number of senior executives in Islamic banks and institutions.

Participants include Ahmad Khaled Babacar, secretary general of the Islamic Fiqh Council; Abdul Basit Shaibi, CEO of Qatar International Islamic Bank; and Abdul Razak Khuraiji, executive vice president and head of the Islamic Banking Development Group at NCB.

The discussions focused on issues related to 'zakat', (or alms giving practiced by Muslims) including measuring zakat for crops and fruits, and trading in the global gold market.

The first Al Baraka symposium was held in Madinah in 1981, Yousif said, adding that the symposium was instrumental in finding economic solutions to the problems faced by Muslim communities.

He commended the role played by chairman Kamil and thanked scholars, researchers, executives and Islamic banking staff for their contributions.

Al Baraka is a Bahrain-based joint stock company licensed as an Islamic wholesale bank by Central Bank of Bahrain, and is listed on Bahrain bourse and Nasdaq Dubai. It is a leading international Islamic bank providing its services to around one billion people. The group's total finance and investment jumped from $2.7 billion in 2003 to $14.3 billion in 2013, the CEO said. [P.K. ABDUL GHAFOUR]

© Arab News 2013

Read More