IslamicFinance.de

Although Islamic banking has been gaining worldwide popularity in recent years, it still faces considerable challenges in raising profitability. Last year, a record US$144 billion worth of new Sukuk, or Islamic bonds, were issued worldwide and experts believe 2013 is likely to be another record year of issuances. Besides wholesale banking, there are opportunities in Islamic wealth management, especially in centres like Singapore. According to Ernst & Young, the largest markets for Islamic banking in asset terms are Saudi Arabia, Malaysia, United Arab Emirates, Kuwait and Qatar. However, most Islamic banks have not been as profitable as their conventional banking counterparts. Experts said this could be because of a weak risk culture, lack of scalability and poorer asset quality.

Bank Indonesia holds The 3rd Bank Indonesia International Seminar on Islamic Finance on 30-31 May 2013, in Bali. The seminar's theme is, "A New Phase of Islamic Finance: Capturing the Untapped Area to Improve the Quality of Economic Development".The seminar is expected to revisit the essense and purpose of the Islamic finance, and explore new sources of growth to maintain the current high level of growth in the Islamic finance industry. The area of discussion includes shariah norms in the economy, the application of Islamic finance in the government sector, the promotion of inclusive growth, and the implementation of macroprudential policies in Islamic finance. The seminar is attended bymore than 200 participants representing regulators, practitioners, and scholars in Islamic banking and finance, both domesticand international.

Emirates Islamic Bank has launched a range of special Shari'a compliant offers for commercial vehicle, machinery and equipment financing especially designed for the small and medium enterprise sector (SME). The programme is part of the bank's long term strategy to support companies in the SME sector. Under SME Vehicle financing, the bank will offer small businesses, finance for new commercial vehicles starting at 4% profit rate (flat) and at 5% flat rate for used vehicles. Similarly, under Machinery and Equipment category, finance will be offered starting at 5.25% flat rate for new machinery & equipment and 6.25% flat rate for used ones. The bank already provides financing solutions aimed at helping businesses manage cash flow, asset acquisition and expansion requirements.

Qatar Islamic Bank (QIB) has been affirmed by international credit rating agency, Capital Intelligence (CI), with a Financial Strength Rating (FSR) of 'A'. This reflects the Bank's Islamic banking franchise, evidenced by substantial growth in financings and customer deposits, net financial income differential, and the Bank's capitalisation. In view of the Bank's intrinsic financial profile, Qatar's economic growth potential, and ongoing government support for all Qatari banks, the Bank's Long and Short Term Foreign Currency Ratings are affirmed at 'A' and 'A2', respectively, on Stable Outlook. Based on the strength of the Qatari government balance sheet, the Support Rating is affirmed at '2'.

Noor Islamic Bank (Noor) is targeting Dhs5bn of lending to small and medium enterprises (SMEs) over the next five years with the launch of Noor Trade. This Shari'a compliant banking service is specifically tailored for SMEs that contribute significantly to the UAE's trade flows. In support of its Noor Trade strategy, Noor has opened its first dedicated trade branch in Almas Tower, home of the Dubai Multi Commodities Centre (DMCC), in Jumeirah Lake Towers (JLT). A second similar branch is scheduled to open in Deira, in July. Under the Noor Trade brand, clients will have access to fully Shari'a compliant financial services, including cash management, trade, and working capital solutions, along with consumer, treasury and takaful products packaged at preferential rates based on eligibility criteria.

Tide Natural Gas Storage LP sued a former group of minority shareholders of Falcon Gas Storage Co., the bankrupt Arcapita subsidiary that sold natural-gas assets to Tide. The energy company says those shareholders' claims in Arcapita's bankruptcy shouldn't be paid before their own. The shareholders have been paid some of the money they were owed but are slated to receive an additional $8.25 million that lies in a $70 million account. The $70 million lies in an escrow account and stems from Tide's 2010 purchase of the natural-gas storage facilities from Falcon. Tide has been fighting for the money in U.S. District Court in Manhattan for two years. Arcapita has argued the $70 million claim by Tide should be subordinated to those of other creditors. The issue, Arcapita says, isn't whether the claim should be placed lower, but rather how much of it should be.

During the past year, there have been a number of cross-regional sukuk, mostly by Gulf issuers tapping Malaysia's highly liquid market. However, sukuk structures are not standardised, and some Gulf-based sharia scholars have objected to certain structures used in Asia, a region which has proven to be more flexible in its transactions. Sukuk issuance in the Middle East outside of the Gulf is also becoming more attractive, notably Turkey, which was recently elevated to investment grade credit status and is bidding to develop an Islamic finance industry. Growth in cross-border Islamic bond issues points to greater convergence in the industry, opening the door to a much wider pool of investors.

The Office of Foreign Assets Control (“OFAC”) recently announced that it removed Iraq’s Elaf Islamic Bank from its Part 561 List. According to a 2012 New York Times article, Elaf had been named to the list because it had facilitated transactions worth millions of dollars with sanctioned Iranian banks and has objected to the Central Bank of Iraq’s allowing Elaf to continue to attend its U.S. dollar currency auctions. OFAC now says that Elaf has offered its mea culpa, frozen the accounts it holds for the Export Development Bank of Iran (“EDBI”) and begun reducing its overall exposure to the Iranian financial sector. The Elaf development appears to be a victory on paper as a non-U.S. person agreed to terms with the U.S. government over its dealings with Iran apparently occurring exclusively outside the United States. One can only wonder about how the United States will monitor Elaf’s frozen accounts or any of its future dealings with Iranian banks.

Family business members from North Africa, the Levant and the GCC recently gathered in Dubai for an interactive roundtable session to discuss the multiple roles played by women in family-owned businesses. Organised and hosted by Tharawat Family Business Fórum, the roundtable was an opportunity to exchange experiences and thoughts on the subject, and to analyse the development, challenges and opportunities encountered by women in family businesses. The attendees from leading regional businesses explored the variety of roles that women play with relation to the family business, be it as managers, owners or family members and custodians of family harmony. The speakers shared their insights and thoughts with an audience and engaged in interactive group work to explore the topics further.

Standard & Poor's Ratings Services has lowered its long-term counterparty credit rating on Jordan Islamic Bank (JIB) to 'BB-' from 'BB' and affirmed the short-term counterparty credit rating at 'B'; the outlook is negative. The rating action follows S&P's downgrade of Jordan in May 2012. As per their methodology, the ratings on JIB are capped at the level of Jordan's long-term foreign currency sovereign credit rating, because it is the bank’s country of domicile. This mainly reflects JIB’s material exposure to domestic sovereign risk, which indirectly accounts for a significant portion of JIB's earning assets and equity. JIB is considered to be "moderately strategic" to its parent group, Bahrain-based Al Baraka Banking Group. However, JIB does not benefit from any notches of parent support because of the constraint imposed by the foreign currency sovereign ratings.

The International Islamic Financial Market (IIFM) has released its IIFM Sukuk Report (3rd Edition) which consists of A Comprehensive Study of the Global Sukuk Market. The research report sheds light on the growth and development of international and domestic Sukuk issuances from 2001 - Jan 2013. According to Mr. Ijlal Ahmed Alvi, Chief Executive Officer of IIFM, the last two years were record years of Sukuk issuances. This year has also started on a positive note and the growth trend is expected to continue in coming years, he added. The report also highlights the different Sukuk structures used by international Sukuk issuers as well as Sukuk structures used at domestic level by various jurisdictions active in issuing Sukuk. Moreover, it contains selected Sukuk case studies in the international Sukuk market and the clarification on the meaning and types of Sukuk Al Istithmar (Investment Sukuk).

Barwa Bank has acted as joint lead manager on Albaraka Turk Participation Bank's (ABT) $200m Tier 2 sukuk. This transaction represents the first Sukuk Murabaha transaction issued in the international capital markets from Turkey. Barwa Bank has been involved in almost all meaningful sukuk business over the last 12 months, guided by its strategy to become a key player in the Islamic debt capital markets. The ABT sukuk is another milestone for the bank, having been involved with several high profile issuers earlier this year as Co-Lead Manager, notably, the government of Dubai, Emirates Airlines and Dubai Islamic Bank.

Standard & Poor's Ratings Services has revised the outlook on the long-term sovereign credit ratings on the Kingdom of Saudi Arabia from stable to positive. At the same time, the long- and short-term foreign and local currency sovereign credit ratings were affirmed at 'AA-/A-1+'. The transfer & convertibility (T&C) assessment for Saudi Arabia is unchanged at 'AA+'. Saudi Arabia can be upgraded during the next 24 months if economic growth remains strong, since continued growth helps to reduce country's social challenges, including unemployment, and enhance productivity and competitiveness. The ratings are constrained by S&P's view that Saudi Arabia's political institutions are at early stages of development. Moreover, given the Saudi riyal's peg to the US dollar, monetary policy flexibility is viewed as limited.

Kuwait's Boubyan Bank (BOUBYAN.KW) has sold a debt that was owed by an investment bank for 2.4 million Kuwaiti dinars ($8.38 million). Boubyan, which is an Islamic lender 58.33% owned by National Bank of Kuwait, said that it sold the debt to an international bank, without naming it. It added that it had previously set up provisions to fully cover this debt in keeping with the instructions of the country's central bank.

Goldman Sachs Group Inc. (GS), which is already providing Arcapita Bank $350 million in bankruptcy exit financing, is now seeking to give the Bahrain investment firm a $175 million bankruptcy loan that would pay off existing lender Fortress Investment Group LLC (FIG). Arcapita said the Goldman loan would pay off the $105 million still owed to Fortress and later convert into the $350 million exit loan that Goldman is already providing. With Arcapita obliged to pay off the Fortress loan by June 14, the company said it needs the Goldman loan approved at a hearing on June 10. Goldman, earlier this month, beat out Fortress in a war over who would provide the exit financing for Arcapita. Fortress's $150 million financing pact, arranged in December for Arcapita, was believed to be the first U.S. bankruptcy loan fully compliant with Islamic Sharia law.

European Islamic Investment Bank PLC Deputy CEO Keith Mcleod is to leave the board with immediate effect.

London-based Gatehouse Bank is considering applying for two or three licences in Malaysia in universal banking, investment banking, and or, wealth management to expand its business in Asia. The bank, which recently commenced operations in Malaysia via a representative office in Kuala Lumpur, would closely discuss licensing options with the Securities Commission and Bank Negara, according to chief representative of Gatehouse Bank in Malaysia Richard Thomas. The establishment of the representative office will be the first step in a two-year larger strategic plan to apply for a full-fledged licence. In these two years, the bank will conduct and collect research as well as analyses of the risks and rewards of investing in Asia.

Luxembourg-based SEDCO Capital Global Funds (SCGF) has announced the first ever Shariah-compliant funds managed according to environmental, social and governance (ESG) principles. The SEDCO Capital US Equities Fundamental Indexing® Fund and SEDCO Capital Global Higher Dividend Yield Fund are screened for compliance with international conventions and guidelines on environment, human rights and business ethics such as UN Global Compact and OECD Guidelines. Non-compliance is dealt with through a process of engagement and exclusion. The funds are targeted at institutions, high net worth individuals, family offices, and qualified distributors wishing to invest in a socially responsible manner, while complying with Shariah principles. The funds can also be distributed by banks who wish to offer this investment opportunity to customers.

Luxembourg-based SEDCO Capital Global Funds (SCGF) has announced the first ever Shariah-compliant funds managed according to environmental, social and governance (ESG) principles. The SEDCO Capital US Equities Fundamental Indexing Fund and SEDCO Capital Global Higher Dividend Yield Fund are screened for compliance with international conventions and guidelines on environment, human rights and business ethics such as UN Global Compact and OECD Guidelines. Non-compliance is dealt with through a process of engagement and exclusion. The funds will also incorporate proxy voting according to best corporate governance standards in its ESG programme. The funds are targeted at institutions, high net worth individuals, family offices, and qualified distributors wishing to invest in a socially responsible manner, while complying with Shariah principles.

KPMG has submitted its recommendations for amending the country's tax law to the Ministry of Finance. The recommendations aim to ensure that Islamic financial institutions are on a level playing field with their conventional counterparts. According to Ashok Hariharan, partner and head of Tax for KPMG in Oman, the recommendations aim to ensure that Islamic financial institutions are put in neither an advantageous nor a disadvantageous position compared to its conventional peers. The recommendations of the international audit firm will circulate among different ministries and agencies to finalise the amendments. Apart from the Ministry of Finance, the Ministry of Legal Affairs Majlis A'Shura will also look into the KPMG report and put forward their recommendations. If everything goes well, the amendments will be announced sometime towards the end of the year.