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In this interview, Al Hilal Bank CEO Alex Coelho gives his regional and global assessment of market threats and opportunities. Coelho still lectures at New York University and those theoretical discussions help feed into the practical decisions he makes in his day job. He’s bullish about recent stock market volatility and doesn’t seem overly concerned at the possibility of the US economy overheating. Now he is more concerned by geopolitical rather than economic upsets. Coelho refuses to predict the future price of oil and sees no correlation between oil prices and their activity as a bank. He says this is due to government focus on diversifying output. He thinks Dubai’s Expo 2020 will have a positive effect on the UAE economy, as such events have high impact in economies that are in growth mode, such as the UAE and GCC.

Financial experts are warning that Iran’s banking sector is at risk of a collapse due to toxic assets. It is no secret that over the past decade all Iranian banks were negatively affected by sanctions, internal mismanagement and corruption. Another disturbing factor in the financial sector has been the presence of unlicensed financial institutions. Government interference has led to the accumulation of tens of billions of dollars of bad debts that will continue to put pressure on the balance sheets of Iranian banks for some time to come. Besides the high ratio of nonperforming loans, Iranian banks have a high portion of overvalued and illiquid assets on their balance sheets that need to be adjusted. Now several Iranian banks are following government instructions and have started to sell their noncore assets. The Central Bank of Iran (CBI) will have no choice but to push for bank mergers and also to impose and implement tough regulations on the country’s banks in order to prevent a deeper crisis.

Malayan Banking (Maybank) is preparing to spin off and list its Etiqa insurance arm on the local stock exchange. Etiqa operates in Malaysia, Singapore, the Philippines and Indonesia and is estimated to be worth at least $1 billion. As part of the transaction, Maybank’s investors are expected to receive shares in the insurance company in proportion to their existing holding in the bank. Etiqa provides life and general insurance as well as family and general takaful. In 2017 Eitqa reported a record revenue of 6.2 billion ringgit ($1.6 billion). Profit before tax rose 18.5% to 1 billion ringgit last year. In March, Etiqa said it maintained its top position in Malaysia’s general insurance and general takaful segment with an 11.8% market share. It was ranked fourth in the life and family segment, with an 8.9% market share.

MBSB Bank, the result of a merger between Malaysia Building Society and Asian Finance Bank, starts afresh as a full-fledged Islamic bank. According to group CEO Datuk Seri Ahmad Zaini Othman, the bank intends to differentiate itself in the area of transactional banking, as well as in digital capabilities. One of the key targets in MBSB Bank’s three-year business plan is to have fee-based income account for at least 25% of its total income by the end of 2020. The bank hopes that its approach towards customers will also set it apart from other lenders. MBSB Bank is starting out with total assets of RM43.7 billion, making it the second largest standalone Islamic bank after Bank Islam Malaysia (RM57.7 billion). Personal financing constitutes the biggest portion of the bank's gross financing and is extended mainly to civil servants. MBSB plans to make a stronger push in the industrial hire purchase segment, which involves SME financing. Zaini plans to offer a lot more products and services for SMEs, especially in the area of current accounts.

According to Fisch Asset Management CEO Philipp Good, the GCC bond and Sukuk market is generally sound. The GCC debt market has seen considerable development, in terms of issuance volume and spread, for both the conventional and Islamic space. The bond and Sukuk pipeline in the GCC for the last two to three years has been dominated by the senior unsecured USD format. At the same time, some project bond issuance has occurred in the GCC, which has utilised highly innovative structures. Recent hybrid issuances from corporates, and Additional Tier 1 bonds and Sukuk from banks such as First Abu Dhabi Bank, Dubai Islamic Bank and Noor Bank, all prove that there is plenty of scope for more sophisticated instruments to be offered. The investor base for GCC debt is now more diverse than ever before, and 2018 looks to be another strong year. It will probably be weighted towards corporates, with sovereigns having dominated the market in 2017.

For the first time in #Pakistani history, three perfectly healthy and viable banks are simultaneously up for sale. They are Bank Alfalah (BAFL), Meezan Bank (MEBL), and Faysal Bank (FABL). The Gulf Arab investors who initially put up the capital to create these banks have held their positions profitably for decades and are now looking for a suitable exit opportunity. The potential foreign acquirers of these banks would be the most interesting ones, since they are likely to be large foreign financial institutions, extending their presence into the Pakistani market. The most interested potential acquirers, however, are the domestic players, only some of whom have a history of previously owning and operating financial institutions.

According to ratings agency Moody’s, Islamic banks across the GCC are expected to outperform their conventional peers in the year ahead. Credit fundamentals have improved due to better underwriting practices and higher profitability. Along with their strengthening franchise, GCC Islamic banks have achieved sustainable improvements in their credit risk profiles. Their cost of risk is expected to stabilise at current levels driven by improvements in asset quality and risk management practices. Whereas these banks had to incur high provisioning charges on their loans and investments in the past, these charges have fallen to levels below those of conventional peers. New investments in distribution channels and technology could add to the costs. GCC Islamic banks are still making considerable investments in building their branch network and technology because they are younger and are more focused on reaching retail customers.

Morocco will finally launch its first sukuk in 2018. According to Hicham Talby, head of the financial sector department at the Ministry of Finance, the new financial instruments that will be operational this year will include four different formulas: Ijara, Wakala, Musharaka, and Murabaha. First, the government must complete the operational, legal, and regulatory aspects of Islamic finance. As Morocco’s first sovereign debt is taking some time to be issued, Talby expects the process to be much faster for the next three planned sukuk issues. The government originally adopted legislation allowing Islamic banking and insurance in January 2014, but there was a delay in authorization.

In this interview, Iyad Asali, General Manger of Islamic International Arab Bank speaks about the future of Islamic banking in Jordan. The Central Bank of Jordan (CBJ) reported that 69% of the population in Jordan are financially excluded. This gives Islamic banks an opportunity to develop new financial services for this segment. Jordan’s Islamic banks are currently trying to take advantage of this situation to raise awareness of their services. They are also working to improve financial literacy through media, events, social networks and conferences. Over the past five years Islamic International Arab Bank has developed a new framework for sharia-compliant SME financing in coordination with the CBJ. This cooperation led to the founding of an Islamic tool for mobilising funds to SMEs at subsidised costs and the establishment of a sharia-compliant fund to guarantee start-ups financing. This programme empowers a large segment of SMEs across various sectors, especially those owned by young entrepreneurs and women, and those located outside Amman.

The General Council for Islamic Banks and Financial Institutions (CIBAFI) has warned of uneven impact from a decline in correspondent banking, reinforcing concerns that small lenders will be most affected from "de-risking" by international lenders. Heightened money laundering enforcement has pushed global banks to cut their relationships in some regions, a policy known as "de-risking". Islamic banks in Africa and South Asia were among those most severely affected, with banks in the Gulf and Europe relatively unscathed. A recent CIBAFI survey of 103 Islamic banks found around a third of respondents experienced a significant decline in correspondent banking. Products most affected included trade finance and international wire transfers. CIBAFI said the practical impact of de-risking might be confined to certain regions and lenders, but it had been severe enough to raise wider concerns.

La Francaise Forum Securities (FS) has launched its sharia-compliant real estate securities separately managed account. The account has been developed for an unnamed Islamic investment manager based in Kuwait. La Francaise FS will select securities with an above average risk adjusted total return to form a portfolio of 30 to 50 stocks. According to Jana Sehnalova, managing director of La Française FS, the account is designed for institutional investors with an Islamic finance focus. She said that La Francaise FS was investigating the viability of developing a fund based on the same strategy as part of the existing product line managed by Groupe La Francaise.

Please feel free to join the afterwork Islamic finance networking event. The online voting showed that Tuesday, 17 April 2018 is the most favoured date by the overwhelming majority. I appreciate if you send me a short email about your attendance to notify the venue about the number of people to be expected: gassner@islamicfinance.de .

Venue: Halles de l'Île, Place de l'Ile 1, 1204 Genève - http://www.brasseriedeshallesdelile.ch/
Google Maps: https://tinyurl.com/ybd35x5u

In fact over years I made the acquaintance of a number of professionals, but we rarely come together.

As there are no sponsors, this is private, including everybody's food & beverage. Going forward I think about a monthly or bimonthly luncheon with brief lecture on a changing subject.

Additionally, there is large Islamic finance summit coming up, also in 26-27 April 2018 in Zurich: http://rfisummit.org/ - I plan to be there on the first day at least.

If you are interested in philanthropy, please pre-register in desired capacity with the Global Donors Forum scheduled 10-12 September 2018 in London, which I am member of the Steering Committee: https://globaldonorsforum.org/preliminary-registration

Morocco will issue its first bonds on Islamic market this year. According to Hicham Talby, head of the finance ministry’s treasury department, the country plans to issue four dirham-denominated sovereign sukuk. While the first issuance would take much time due to the implementation of a legal framework for the operation, authorities expect the process to be faster for the three other issuances. Mali has already launched its first sukuk issuance for 2018. Likewise, South Africa and Sudan have recently announced their intention to follow the move in 2018. The Moroccan government also wants to establish a sovereign sukuk fund, ahead of an increase in dirham-dominated Islamic bonds, over the coming years.

The Nigerian Stock Exchange announced the listing of the N100bn, seven-year, Federal Government Ijarah Sukuk with a rental rate of 16.47%. Director General of the Debt Management Office Ms. Patience Oniha said that the FGN Ijarah Sukuk was designed to finance critical road infrastructure across the country. She added that the proceeds would be used to further support the construction and rehabilitation of 25 roads across the six geopolitical zones of the country. According to Oscar Onyema, CEO of the Nigerian Stock Exchange, the listing has strong implications for emerging and frontier markets, which continually seek to unlock dormant pools of capital needed for economic growth and development.

Sharjah Islamic Bank has given initial price guidance in the 160 basis points over mid-swaps range for a planned five-year dollar sukuk issue that has been capped at $500 million. The bank is expected to price the Islamic bonds later on Wednesday. The bank has appointed HSBC and Standard Chartered Bank as global coordinators and Bank ABC, Dubai Islamic Bank, Emirates NBD Capital, First Abu Dhabi Bank, HSBC, Noor Bank, and Standard Chartered Bank as joint lead managers and bookrunners for the issue.

Albaraka Türk Participation Bank has sent a notice of redemption to its certificate holders on 06 April 2018 for its US$200,000,000 outstanding sukuk. Albaraka General Manager Meliksah Utku said the early redemption of the sukuk before its maturity in 2023 reflects the bank's partnership-centric approach to sukuk investors. The redemption date of the sukuk will be 07 May 2018 and will be redeemed at the aggregate of the outstanding face amount plus accrued but unpaid periodic distribution. Issued in May 2013 as a Tier 2 subordinated and USD-denominated sukuk al murabaha, the certificates were rated CCC+ by S&P and carried a coupon of 7.75% per annum.

Dubai Financial Market (DFM) released the draft of its "Standard on Investment Funds", the first of its kind all-inclusive standard. The DFM invited Islamic finance professionals to provide counsel and feedback on the standard. The consultation period will be concluded on 11 May 2018. Dr. Hussein Hamed Hassan, Chairman of DFM’s Supervisory Board said the Standard complements the DFM Standard for Issuing, Acquiring and Trading Shares. It comprehensively explains the two ways of Shari’a-compliant fund management, Mudaraba or an investment agency contract (Wakala bil Istithmar) and the circumstances stipulating that fund management is responsible to pay Zakat. It also defines the key disclosures that should be included in the financial statements.

The proceeds of N100 billion Sukuk are being applied to infrastructure development across Nigeria. Director General of Debt Management Office (DMO) Ms. Patience Oniha said that the proceeds were designated for the financing of 25 road projects across the six geopolitical zones of the country. An inspector team visited Abuja-Abaji-Lokoja Road, Obajana-Okene Road, Suleja-Minna Road and Kaduna Eastern Bypass Road. During the inspection, the team assessed progress on the work that had been done as well as ongoing rehabilitation and construction works on the roads. Of particular significance is the fact that the funds from the Sukuk had made it possible to construct the Okene Bypass, which reduces congestion on the roads within the town.

Senior scholars in Islamic finance are exploring ways to prevent legal disputes with new rules aiming to clarify responsibilities. The discussions are part of the annual sharia conference of the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). AAOIFI has developed a comprehensive sharia standard for sukuk that is being finalised, with work underway on three accounting standards and a governance standard. According to Said Bouheraoua, director of the Malaysia-based International Sharia Research Academy for Islamic finance, Dana Gas and other cases highlight the potential need to legislate work of scholars and penalties for breaches. At present, only the central bank of Malaysia has stipulated such fines, although this requires proving breaches occurred in 'bad faith' making penalties difficult to apply.

London’s draft standards for transaction of Islamic commercial insurance are seeking Shariah scholars’ approval this year for roll-out next year. The Islamic Insurance Association of London (IIAL), which counts Lloyd’s of London as a founding member, has sought Shariah and legal opinion for the standards framework it has developed. The planned roll-out of IIAL’s takaful standards will more or less coincide with the UK’s departure from the European Union on March 29 next year. According to IIAL secretary-general Jon Guy, lots of managing general agents (MGAs) will target UK retail takaful because they will have the ability to access Shariah-compliant capital. Once the syndicates have gone through the regulatory and administrative setup, they will be very keen at looking at how they can deploy it.