Fitch Ratings has assigned Bahrain's proposed US dollar-denominated sovereign global sukuk trust certificates, to be issued by CBB International Sukuk Company 5 (CBB5), an expected 'BB+(EXP)' rating. Fitch has also assigned Bahrain's proposed US dollar-denominated bonds an expected 'BB+(EXP)' rating. The expected ratings are in line with Bahrain's Long-Term Foreign Currency Issuer Default Rating (IDR), which was downgraded to 'BB+' with a Stable Outlook in June 2016. Certain aspects of the sukuk transaction will be governed by English law while others will be governed by laws of Bahrain. Fitch's rating on the certificates reflects the agency's belief that the Bahraini government would stand behind its obligations.
Emirates Islamic disbursed AED 1 million to Dubai Charity Association from its Zakat fund. The contribution will fund the association’s various charitable activities, such as helping the poor and needy and individuals in debt. The cheque was presented by Awatif Al Harmoodi, General Manager at Emirates Islamic and handed over to Abdul Rahim Gargash, Vice Chairman at Dubai Charity Association. In 2016, the bank has so far distributed more than AED 30 million to various charitable causes. Emirates Islamic has disbursed funds towards medical and rehabilitation equipment to government and privately run institutions including Ministry of Health, Ajman Club for disabled and Al Ihsan Medical Complex.
Mirroring the conventional banking sector, Islamic finance institutions are turning to IT directors to lead the change towards business innovation. Zubair Ahmed, head of IT and business innovation at Emirates Islamic Bank, says the IT department is no longer viewed as simply an enabler, but as a business innovator in its own right. Ahmed says many of the bank’s innovations are born in the IT department. The bank’s integrated tech innovation approach is yielding results. Emirates Islamic was recognised among Global Finance’s 2016 'The Innovators' of Islamic Finance for EI trade, a Shariah-compliant online trade finance and supply chain platform. In May 2016, it also became the first Islamic bank in the UAE to enable its customers to access basic account services via Twitter.
According to a recent Fitch Ratings report, major Saudi banks continue to report liquidity coverage ratios (LCRs) above 100% despite a 30% outflow of government-related deposits. The banks’ ability to withstand such a shock demonstrates that their liquidity positions are resilient. The Saudi Arabian Monetary Agency (SAMA) released $5.3 billion (20 billion Saudi riyals) of government-related deposits into the banking sector yesterday. According to Fitch Ratings, Saudi banks will continue to adopt careful liquidity management strategies in order to protect their LCRs from falling below current levels.
National Bonds Corporation, a Shari'ah-compliant savings and investment company in the #UAE, announced the results of its financial health check for Q3 2016. The survey found that the majority of the UAE’s residents are yet to sign up for Takaful coverage while only a minority is covered by traditional insurance. Within the UAE national pool of respondents, 89% admitted to not being insured against disabilities through Takaful in contrast to 11% that have traditional coverage against disabilities. The financial health check also charted the financial stability of participants. The results of the present survey are encouraging and indicate that 67% of UAE nationals and 72% of expat residents plan to pay off their liabilities and become debt free by end of this year.
The relationship between capital structure and performance in Gulf Countries Banks, came under the spotlight in a comparative study between Islamic Banks and Conventional Banks. The study was conducted by Associate Professor in Finance and Banking at Kingdom University Dr. Abdelrhman Meero. According to Professor Meero, it is imperative to conduct continuous studies and research in this field, especially as new trends and regulations are periodically introduced by governing authorities in this sector. Results of the study show that there is a similarity of capital structure of Islamic banks and Conventional banks in Gulf Countries. The similarity of capital structure could be the result of the regulation system of the Gulf Countries, which controls the two types of banks by the same capital adequacy regulations.
According to S&P Global Ratings, banks in the Gulf Cooperation Council countries will remain under pressure for the remainder of 2016 and 2017. The operating environments in these emerging markets are suffering from the effects of low commodity prices and weakening local currencies outside the GCC. S&P thinks that not only will banks' loan growth decline, but profitability will also drop. On a positive note, S&P thinks that the deterioration will be largely controlled and that banks have the capacity to absorb the negative impacts thanks to their strong asset quality, good profitability, and strong capitalisation.
The Islamic Microfinance Summit takes place on September 26-27, 2016 in Dubai and is organized by Uniglobal, a Prague-based provider of workshops and conferences. The theme of this conference is "raising awareness and ensuring compliant and targeted product development to aid poverty alleviation." Its goal is to promote Islamic microfinance, particularly to the international donor community.
Retail-focused Islamic banks in GCC countries have strong liquidity coverage ratios (LCRs) due to their large base of core retail customer deposits and low reliance on market-sensitive wholesale funding. According to Moody’s, retail deposits in 2015 comprised around 67% of Islamic banks’ customer deposits for the three GCC countries, compared to 40 for conventional banks. Islamic banks in GCC countries have become systemically important and continue to increase their market penetration, outpacing conventional banks. Sustained lower oil prices continue to reduce the flow of deposits and could lead to a gradual weakening of the LCR metrics for both Islamic and conventional banks.
Across the world, organisations can no longer define success or efficiency solely on the merit of financial results or revenue earned. Reporting is still very much driven by numbers, and performance is measured in terms of hard outcomes, rather than the more qualitative aspects. An integrated approach asks the management of an organisation to consider a wide variety of capitals — beyond financial and manufactured capital. The concept is fairly new to the GCC, sustainability has become a major focus for businesses and organisations of all kinds. Today, sustainability cannot be separated from other business practices and needs to be fully integrated into each function within the organisation.
Launched by Al Mal Investment Company (KPSC), Takharoj is the region's first web-based application that connects minority investors in Unlisted Securities to offer them big investment privileges. A variety of functions are covered, such as management, representation, policy-making and selling shares. Commenting on the launch of Takharoj, Abdul Wahab Al Mutawa, CEO of Al Mal Investment said Takharoj's objective is to group like-minded minority shareholders to negotiate optimal outcomes. Clients only need to upload their basic investment information on the web-portal so that Takharoj can act on their behalf and in their best interest.
Corporate and infrastructure sukuk issuance in the Gulf region and Malaysia has continued to stagnate so far this year and this may carry over to the coming quarters, according to S&P Global Ratings. Despite the slump, essential infrastructure funding requirements, low interest rates, and investors' appetite for Islamic assets in their portfolios continue to be supportive for the world's core corporate sukuk markets.
In the GCC, corporate and infrastructure sukuk issuance totalled $2.5 billion in the first eight months of 2016, compared with $2.3 billion for the preceding eight months. Versus the same periods in 2013 and 2014, issues are down sharply from $5 and $6.5 billion, respectively, S&P said.
"Further out, we see possible brighter prospects for issuing corporate and infrastructure sukuk over the medium to long term. We estimate that Gulf government spending on projects alone - including infrastructure contracts awarded over 2016-2019 - could be about $330 billion," said S&P Global Ratings analyst Karim Nassif.
Qatari Islamic banks’ short-term high quality liquidity assets to cover monthly net cash outflow is comparable to those of their conventional peers and their funding pressures are to some extent mitigated by frequent bonds and sukuks issuance by the government, according to Moody’s, a global credit rating agency.
“In Qatar, the LCRs (liquidity coverage ratios) of Islamic banks are comparable to those of their conventional peers. This situation reflects the absence of sizable retail deposit franchises among the Qatari banks, coupled with heightened systemic liquidity pressures that had led to banks relying more heavily on market funding,” Moody’s said in a report. The funding pressures are mitigated somewhat by the frequent issuance of bonds and sukuk by the Qatari sovereign, a situation, which provides local Islamic banks with the same good access to HQLAs (high quality liquid assets) as their conventional peers, it said.
The rating agency found that five of the six GCC countries are Basel III compliant and have introduced LCRs, namely Saudi Arabia, Qatar, Kuwait, Bahrain and Oman; only the UAE has yet to adopt a LCR framework for its banks.
Moody's Investors Service says that the liquidity coverage ratios of Islamic banks in key Asian and GCC countries highlight sound liquidity profiles and broad compliance with Basel III regulatory requirements.
"In the report, we highlight that a key driver of LCR performance is the funding profile of banks and, in this context, over-reliance on corporate deposits and unsecured wholesale funding means higher potential liquidity pressures," says Simon Chen, a Moody's Vice President and Senior Analyst. "However, banks with a greater proportion of retail deposits that are considered more 'sticky', typically display stronger LCRs," adds Chen.
A Dubai-based subsidiary of Islamic investment bank GFH Financial Group has sold its remaining 18 % stake in English football club Leeds United, ending nearly 4 years of Middle Eastern involvement in the club. GFH Capital sold the stake to Eleonora Sport, operated by Italian businessman Massimo Cellino. Eleonora now owns 100 % of the club, Leeds United said.
GFH bought Leeds United in December 2012 but within months began looking for new investment in the club, and in 2014 Cellino bought a majority stake in it. GFH Financial did not reveal the price at which it sold its remaining stake but said the deal would reflect positively on its financials and liquidity for 2016. Crippled during the global credit crisis in 2008, GFH Financial went through several debt restructurings but has resumed expanding in the financial services sector. In August it signed a memorandum of understanding to buy most of Bahrain's Bank Al Khair.
The overall profitability of Takaful industry is under strain largely because the industry has yet to break into some of the most profitable lines of business that are dominated by conventional payers, according to rating agency Standard & Poor’s.
“In our view, the takaful sector is underperforming, especially in the UAE, because it lacks the advantages of conventional insurers, which are often larger and benefit from better economies of scale. They have more-established distribution mechanisms and so their revenue generation is less dependent on intermediaries,” said Emir Mujkic, Associate Director, Finance Services of Standard & Poor’s.
The crowded UAE and other Gulf Cooperation Council insurance markets often suffer from overcapacity, which can often trigger aggressive price wars. “In our opinion, Islamic insurance companies require considerable capital investment to become established, yet relatively new companies often come under pressure to generate profits and deliver healthy returns to their investors,” said Mujkic.
According to Standard & Poor’s, profitability of the GCC takaful industry is expected to remain relatively weak during the current year and the year ahead despite an impressive 20% year-on-year growth gross premiums in 2014 and 2015. Most takaful players are still relatively small compared with their conventional peers. Their shorter track records and less-diverse books of business put them at a disadvantage now that the falling oil price and stricter regulation are hitting GCC insurance markets. Including Saudi Arabia, the GCC’s Islamic insurance market generated an estimated pretax surplus of more than $260 million in 2015. But the takaful sector in the remaining GCC states generated a combined net loss of about $5 million in 2015 and net losses surged to about $11 million during the first six months in 2016.
King Abdullah Port (KAP) will add new terminals after securing a $720m Islamic bank loan to finance the planned second phase development of Saudi Arabia’s first fully privately owned port. The strategically positioned Red Sea port unveiled the SAR 2.7bn ($720m) murabaha facility, with a tenure of 14 years, from Arab National Bank and Saudi Arabia British Bank. KAP has quickly established itself as a serious alternative to historic Jeddah Islamic Port which previously handled the bulk of Saudi Arabia’s cargo. Once complete, KAP will be able to handle 20m teu, 1.5m vehicles and 15 million tons of clean bulk cargo annually.
Emaar Properties and Kuwait’s Burgan Bank raised $1.25 billion (Dh4.59 billion) from bond sales. Emaar sold $750 million of 10-year Islamic securities, pricing them at 225 basis points over the benchmark midswap rate. Burgan Bank raised $500 million from a sale of five-year dollar securities that will carry a spread of 215 basis points over midswaps. Corporate bond sales are picking up amid a rush of sovereign issuance in the oil-exporting region. Saudi Arabia is expected to raise at least $10 billion in October from its first offering of international securities.
Moody's announced that Al Rajhi Bank's dominant Islamic retail franchise will continue to drive a strong financial performance into 2017. Despite pressure on the Saudi economy from lower oil prices, Al Rahji's retail focus delivers solid margins and asset quality. Moody's analyst Nitish Bhojnagarwala said Al Rajhi's Islamic retail portfolio drives higher financing yields and stronger margins than its peers both in Saudi Arabia and the Gulf Co-operation Council (GCC). Coupled with a modest cost base and relatively lower provisioning, this generated a solid return on assets of 2.5% for the first six months of 2016. Furthermore, strong profits, combined with solid retention rate, provide healthy internal capital generation for the bank, which had a tangible common equity ratio of 19.8% as of June 2016.