The Edge Markets

Solid growth in Islamic IAs expected to normalise

In #Malaysia Islamic investment accounts (IA) have grown at a strong pace since they were introduced in 2015. Bank Negara’s latest monthly banking statistics show that IAs have since grown to RM74.2 billion as at February this year, accounting for 13% of total liabilities within the Islamic banking system. According to Simon Chen, senior analyst at Moody’s Investors Service, by 2020 IAs will probably account for some 16% of the Islamic banking system’s total liabilities. An important feature of IAs is the sharing of risk between the bank and the account holder. For an investor, IAs are attractive because they offer much higher returns than a deposit account. But, unlike a deposit account, the principal amount in an IA is not guaranteed by Perbadanan Insurans Deposit Malaysia. According to Chen, a key issue that remains is whether the loss-sharing mechanism in IAs will be honoured by banks in case of actual losses. A significant loss to test the resilience of this regime has yet to occur.

Allianz ends HSBC Amanah takeover talks

Allianz Malaysia, a subsidiary of the German Allianz SE, has ended discussions to acquire HSBC Amanah Takaful. The company announced it has discontinued its negotiations with the shareholders of HSBC Amanah, namely HSBC Insurance (Asia-Pacific), JAB Capital and Employees Provident Fund (EPF). The life and general insurer did not give a reason why the talks failed. Allianz Malaysia CEO, Zakri Mohd Khir, previously said that he had been approached by takaful operators in the past, but the asking price was too high. Allianz Malaysia had been pursuing a bid for HSBC Amanah since October last year. Allianz Malaysia saw its net profit rise by a marginal 1.1% to RM312.13 million in the financial year 2016 (FY16) from RM308.87 million in FY15 due to higher gross earned premiums and investment income. Revenue also grew by 3.5% to RM4.68 billion from RM4.52 billion.

#Malaysia's Public Sector Home Financing Board issues RM3.25b #sukuk

Malaysia's Public Sector Home Financing Board issued up to RM3.25 billion sukuk to finance housing loans to the public sector employees. The board is also known as Lembaga Pembiayaan Perumahan Sektor Awam (LPPSA). The LPPSA said the RM3.25 billion sukuk notes formed a part of its RM25 billion Islamic commercial papers programme, which is guaranteed by the Malaysian Government. The sukuk was issued in tranches of five-year to 30-year and was priced at 4.17% to 5.225% per annum across tenures. Lead managers include Affin Hwang Investment Bank, AmInvestment Bank, Bank Islam Malaysia, CIMB Investment Bank, Maybank Investment Bank, OCBC Bank and RHB Investment Bank. CIMB is also the facility agent while RHB Islamic is the Shariah adviser.

#Malaysia leads in #Islamic #banking assets in region, says World Bank report

Islamic finance has largely been a priority area in Malaysia for three decades and it is not about to slow down. The World Bank's recent Global Report on Islamic Finance highlighted Malaysia as having the largest Islamic banking assets in the region with US$156.7 billion (RM697.15 billion) as at 2013. Malaysia is also the second-largest economy in terms of total syariah-compliant financial assets. However, the report also suggested the need to address several challenges like the need for alternative investments. On a positive note, the report said the syariah governance framework was advanced in Malaysia. Within Asia, Malaysia has been dominating the sukuk issuance market. The US dollar-denominated sukuk have been growing, but sukuk denominated in Malaysian ringgit are growing even faster and dominate the market.

Fitch: #Malaysia's #takaful continues to enjoy higher growth than conventional peers

According to Fitch Ratings, Malaysia's takaful sector continues to enjoy higher growth than the conventional sector. This growth is driven by a low base, stable domestic consumption and increasing consumer awareness. The rating agency said that regulatory pressure would drive sector consolidation in the short term. As takaful operators realign their strategic focus and gradually retain more risks, Fitch expects some bottom-line volatility in the short term. For the first half of 2016 (1H2016), family takaful grew by 9.8%, while general takaful grew by 5.8%. This compared to 8.2% growth in conventional life and 2.6% in general insurance.

#Malaysia’s Islamic financing keeps growth momentum despite moderating economy — Fitch

According to Fitch Ratings, Malaysia’s Islamic financing has maintained its double-digit growth in spite of the country’s moderating economy, with a 12.1% annual growth in the first half of 2016 (1H16). Although the growth was lower compared to last year, it still pushed Islamic loan share to 27.9% in the Malaysian banking system loan sector, versus 27% a year ago, as the sector’s expansion outperformed that of conventional banks over the past five years. Sukuk issuance also exceeded conventional bonds, with total market capitalisation rising to 62.2% by end-June 2016. Investment accounts expanded to RM36.2 billion by June this year from RM4.3 billion in July 2015, while Islamic deposits remained flat. Malaysia still leads the global Islamic finance industry in terms of regularisation, standardisation and sukuk issuance, accounting for over half of the issuances worldwide in 1H16.

Arsalaan is new HSBC Amanah CEO

HSBC Amanah Malaysia has appointed Arsalaan Ahmed as its chief executive officer (CEO). HSBC Amanah announced that Arsalaan will be leading the Islamic banking businesses for retail, commercial and wholesale banking, and reporting to HSBC Bank CEO Mukhtar Hussain. Prior to joining HSBC Amanah, Arsalaan was appointed as the head of capital financing and financial institutions of Barwa Bank in Doha, Qatar, where he led the development of the Islamic debt capital market and wholesale banking platform. Arsalaan has 15 years of experience and has distinguished himself as an expert in syariah-compliant retail, corporate and investment banking.

CIMB IB top lead manager for bonds, #sukuk

CIMB Investment Bank (CIMB IB) came out tops on RAM Rating Services' league tables for both corporate bonds and sukuk as at end-September 2016, after having arranged RM21.25 billion worth of RAM-rated corporate bonds and sukuk. The amount represents 56% of the RM37.88 billion RAM-rated corporate bonds and sukuk in the first nine months of the year. In terms of sukuk programme value, Maybank Investment Bank (Maybank IB), which has arranged RM12.54 billion or 72% of RAM-rated sukuk, takes the lead. As at end-September 2016, outstanding corporate bonds stood at RM536.5 billion, while the gross issuance of corporate bonds and sukuk amounted to RM66.4 billion, almost 50% higher than last year’s January-to-September period. RAM anticipates the corporate bond market to chart a steady course through the remainder of 2016.

#Oman and #Indonesia making most progress in Islamic finance

According to Moody’s Investors Service, Oman and Indonesia have made the most progress this year in terms of taking initiatives to advance Islamic finance. According to Khalid Howladar, global head of Islamic finance at Moody’s, Oman’s strategy has already yielded substantive results and new sukuk regulations have been published. Over three years Oman’s Islamic banking sector has gone from zero to an agregate of around 10% of the banking system’s financing assets as of June 2016. Indonesia has several inititives to accelerate growth. Also, the country launched a 10-year Islamic finance master plan that consists of action plans and interventions covering key aspects. Meanwhile, markets that seem to have stalled this year are the United Arab Emirates (UAE) and Saudi Arabia.

APM to establish #sukuk programmes

In #Malaysia APM Automotive Holdings has proposed to establish an Islamic commercial papers (ICP) programme and Islamic medium term notes (IMTN), with a combined nominal value of up to RM1.5 billion. In a bourse filing APM said the ICP and IMTN programmes will have a tenure of seven years and 20 years respectively, from the date of first issue. The proceeds from the issuance of the sukuk murabahah shall be utilised by the company for general corporate purposes and to refinance future financing of APM and its subsidiaries. APM assured that the utilisation of the proceeds of the sukuk murabahah programmes would be at all times for syariah-compliant purposes.

NB: Figure was amended from RM 3 bn to RM 1.5 bn following correction in original source.

Islamic Finance: Demand for more shariah-compliant products

While the number of Islamic products in #Malaysia has grown in the last 10 years, there still aren’t enough to cater for the needs of local investors. According to Rohani Mohd Shahir, president of the Association for Islamic Financial and Wealth Management Malaysia (AIFiWM) the growing demand is due to a greater awareness of compliance for religious purposes. There is a lack of Islamic real estate investment trusts (REITs) and fewer shariah-compliant stocks in Malaysia today due to the tightening of regulatory requirements. To increase the number of listings available, AIFiWM is championing a move to restore the shariah-compliant status of companies that were once deemed compliant.

Former CIMB Islamic’s Badlisyah is now deputy CEO of Tabung Haji

Badlisyah Abdul Ghani, the former CEO of CIMB Islamic Bank, has been appointed deputy CEO of pilgrim fund Lembaga Tabung Haji. Badlisyah gained fame when he disputed the authenticity of banking documents released by The Wall Street Journal relating to 1Malaysia Development, which touched on US$700 million being transferred to Prime Minister Datuk Seri Najib Razak’s personal accounts. While an internal inquiry was ongoing at CIMB, Badlisyah resigned in mid-August last year. It is not clear how Badlisyah is already stated on the company website as deputy CEO, when no formal announcement has been made in this respect.

#Estate planning: The benefits of Islamic estate planning (Pt 1)

In #Malaysia estate planning is an often forgotten element in a Muslim’s financial plan. According to Abdul Aziz Peru Mohamed, CEO of as-Salihin Trustee, estate planning is how we protect the assets we have spent a lifetime accumulating. He says 85% of the local Muslim population have not done any estate planning. There had been an estimated RM60 billion worth of unclaimed assets since the country’s independence in 1957. This is a substantial increase from RM42 billion worth of frozen assets in 2011. By having a will or trust, the issue of unclaimed assets will not arise as the settlor will appoint an executor or trustee to manage the deceased’s assets.

#Sukuk Pipeline: Issue plans around the world

The Thomson Reuters Global Sukuk Index was last at 119.83102 points, up from 116.97354 at the end of last year. The Thomson Reuters Investment Grade Sukuk Index is at 118.12115 points against 115.21206 at end-2015. The Islamic Corporation for the Development of the Private Sector, which completed a debut sale of US$300 mn of five-year sukuk this year as well as two private placements, plans a further transaction in coming months.

Tabung Haji said to offer US$290 mil London office for sale

#Malaysian fund Lembaga Tabung Haji has hired broker Savills to find a buyer for its London office building at 10 Queen Street Place. The building was purchased by Tabung Haji in 2012 for £165 mn and is now expected to sell for about £200 million. Malaysia’s state investment funds have been selling UK real estate as the government called on them to help the country’s stock and currency markets.

Takaful’s family unit chalks up rapid contribution growth

Syarikat Takaful Malaysia Bhd (STM)’s first financial quarter ended March 31, 2016 (1QFY16) net profit was in line with their expectations, accounting for 24% of the full-year forecast. The positive takeaway from the 1QFY16 results was a swift expansion of 14.4% year-on-year (y-o-y) in gross earned contributions (GEC) to RM426.8 million. This emanated primarily from its family takaful unit, which chalked up a growth of 21.8% y-o-y in its 1QFY16 GEC (mainly from mortgage-related products).

Sukuk Pipeline: Issue plans around the world

The Thomson Reuters Global Sukuk Index was last at 118.52310 points, up from 116.97354 at the end of last year. The Thomson Reuters Investment Grade Sukuk Index is at 116.74988 points against 115.21206 at end-2015. Some of the sukuk in the pipeline are the following: Saudi International Petrochemical Co said in late March that it had appointed Riyad Capital and NCB Capital as lead managers for a sukuk issue, without giving further details. Saudi Arabian Airlines plans to raise 5 billion riyals (US$1.3 billion) via the first tranche of a sukuk issuance programme in the second or third quarter of this year. Kuwait's Boubyan Bank aims to issue US$250 million of sukuk before the end of April.

Islamic crowdfunding for social-impact housing (Pt 1)

Today, crowdfunding is a part of the financial services segment known as financial technology (fintech). And it is seeing exponential growth in investments. There are four types of crowdfunding — debt, equity, rewards and donations. There are also new variants and concepts such as Islamic crowdfunding, which is the use of shariah-compliant crowdfunding platforms. Higher bank interest rates for property development have seen the emergence of real estate crowdfunding. And as interest rates continue to rise, developers will need to look beyond traditional financing for their projects, according to a Crowd101.com article entitled “Crowdfunding 2016 predictions: The next real estate boom?”

Shariah-compliant platform for investors

Investors can now look forward to investing directly in and sharing the profits from shariah-compliant investment activities via the first Islamic bank-intermediated financial technology (fintech) platform in the world. The Investment Account Platform (IAP) was launched by Bank Negara Malaysia on Feb 17. Similar to crowdfunding and peer-to-peer lending platforms, the IAP allows investors to fund either private or government-related ventures that are seeking financing to grow their business. Investors will be allowed to choose the ventures they invest in and may define the investment mandate and eligibility criteria for their financing, for example, the investment tenure and types of industries.

Sukuk issuance will remain stable in near term, says Islamic finance expert

Sukuk issuance for the near term will remain stable despite current global economic uncertainties, as it is seen as a resilient financing instrument to weather through difficult times, according to Islamic Financial Services Board (IFSB) secretary-general Jaseem Ahmed. This is because the issuance of the Islamic finance instrument is very much dependent on preconditions of a particular country, and not solely or directly correlated to current economic and market volatility, he said. However, he added that while current concerns regarding global headwinds are not to be underestimated, many governments are recognising that it does help to have a diverse source of income.

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