IslamicFinance.de

The International Monetary Fund has endorsed the principles of Islamic finance, saying it could prove safer than conventional finance, but the multilateral lender warned Islamic bankers that they must tighten rules and follow them more consistently. A report released by the IMF this week noted that because Islamic banking forbids pure monetary speculation and stresses that deals should be based on real economic activity, it could pose less risk than conventional banking to the stability of financial systems. However, the industry could fail to achieve its promise – and even have a destabilising effect – if it does not design its rules more carefully and implement them more consistently, the report added.

Saudi Arabia’s Bank Aljazira has appointed the investment banking arms of Gulf International Bank and Riyad Bank to advise it on a SAR3 billion ($800 million) rights issue. The price and number of shares to be issued under the offering, which will be arranged by GIB Capital and Riyad Capital, is still pending approval from the relevant authorities and shareholders, the bank said in a bourse filing. The rights issue by one of the Kingdom’s smaller lenders by assets will be used to strengthen its capital base and finance its activities, the bank added.

Qatar’s Masraf Al Rayan is eyeing a debut in the debt capital markets this year after inviting bankers to pitch for arranger roles on a potential U.S. dollar-denominated benchmark sukuk issue, sources said on Monday. The sharia-compliant institution is expected to raise funds before end-April. Masraf Al Rayan is “very close” to mandating arrangers for the upcoming sukuk issue, two sources said. Masraf Al Rayan joins a growing pipeline of potential Gulf issuance as borrowers want to obtain funds from the dollar debt markets before a possible increase in interest rates by the U.S. Federal Reserve later this year.

Sharjah Islamic Bank (SIB) priced a $500 million sukuk of five years duration on Tuesday. The Islamic bond was priced at a spread of 110 basis points over midswaps and carried a profit rate of 2.843 per cent. The final spread was at the tight end of price guidance issued earlier in the day of 115 bps, plus or minus 5 bps, over the benchmark. The order book was worth around $3 billion. SIB’s sukuk was arranged by Noor Bank, Abu Dhabi Islamic Bank, Al Hilal Bank, Dubai Islamic Bank, Emirates NBD, HSBC, KFH Investment and Standard Chartered and was sold after a series of investor meetings in Asia and Europe.

Dubai-based Emirates REIT announced that Eiffel Management has acquired a 25 per cent in the REIT manager that was previously held by Dubai Islamic Bank (DIB). The value of the transaction was not disclosed. The REIT Manager is responsible for running the property portfolio of Emirates REIT and all the operations concerning the REIT. It is incorporated in Dubai international Finance Centre and licensed by DFSA. Following the deal, Eiffel Management will own 100 per cent of REIT manager’s total issued share capital. Emirates REIT reported a net profit growth of 39 per cent to reach $48.5 million in 2014 from $34.8 million in 2013.

Qatar Islamic Bank said on Monday its shareholders had approved the issuance of up to 5 billion riyals ($1.37 billion) of Tier 1-boosting sukuk. The sale would be in accordance with Basel III banking rules and the final amount and currency of the offering would be decided by the board at a later date, the bank said in a bourse filing. The bank said on Jan. 18 it planned to raise up to 2 billion riyals through a sukuk which enhanced its Tier 1 – or core – capital.

Despite the surge and purported popularity of Islamic finance, the industry is inconsequential in comparison to conventional finance. Islamic finance assets are heavily concentrated in the Middle East and Asia, and overwhelmingly in the Islamic banking sector. The Great Financial Crisis has caused a fundamental loss of trust by the general public in the financial system. Islamic finance should capitalise on this opportunity by highlighting its ethical standards and risk sharing principles. Nevertheless, there is a long road ahead for Islamic finance to achieve mainstream status. GCC governments need to take the lead to mainstream Islamic finance.

Abu Dhabi-based Khalifa Fund for Enterprise Development will provide $200 million in loans for microfinance projects in Egypt, a move it said would create more than 120,000 jobs by 2020. The UAE state investment fund has signed the loan agreement with the Egyptian government in Cairo. The loan will be directed towards microfinance development in remote and disadvantaged areas and pockets of poverty throughout Egypt. It will also help Egyptian women in rural areas find work. Egypt issued its first law regulating microfinance services last week, seeing the provision of extremely small loans could help to create jobs by giving individual entrepreneurs a start.

Bahrain-based Gulf Finance House has completed a capital reduction plan, a move that helps the Islamic investment firm to cut accumulated losses. It had received approval from the Bahraini authorities for the step, which reduces the nominal value of its shares by 13.8 per cent to $0.265 per share from $0.3075. As a result, paid-up capital had been reduced to $837.9 million from $972.3 million. Accumulated losses on GFH’s balance sheet had been reduced by $134.4 million under the measure. The reduction doesn’t involve any cash transfer and doesn’t impact on shareholder positions as the bank’s net equity remains unchanged.

Funds dedicated to sukuk are a rare breed, with only 20 currently marketed in the Gulf. The average size of a sukuk fund in the region is just $43 million, but collectively they serve as a measure of secondary market activity and a barometer for the larger and more lucrative business of private investment mandates. As the market sees sukuk funds continue to perform well, in line with, and on occasion outperforming their conventional peers, a significant rise over the next five years in segregated account mandates is expected to take place. The largest six sukuk funds oriented to Gulf investors hold almost half of all the assets of such funds.

Middle Eastern banks bought the vast majority of a debut $500 million sukuk issue by Goldman Sachs, a positive sign for other conventional banks hoping to tap the region’s liquidity by issuing Islamic debt. Goldman priced its five-year sukuk on Tuesday at a profit rate of 2.844 per cent, drawing about $1.5 billion of investor orders, after roadshows in Qatar and the United Arab Emirates. Middle East investors bought 87 per cent of the Goldman sukuk, while 11 per cent went to Europe and two per cent to Asian investors. Banks bought 77 per cent of the bonds, asset managers bought 22 per cent and private banks bought one per cent. Meanwhile, France’s Societe Generale and Japan’s Bank of Tokyo-Mitsubishi UFJ set up sukuk programmes in Malaysia, but have not issued yet.

Turkish Islamic lender Turkiye Finans Katilim Bankasi plans to establish a presence in Bahrain. No details were given on the timeframe to start operations or what type of licence was being sought. Turkiye Finans, in which Saudi Arabia’s National Commercial Bank is the largest shareholder, announced the plans during a visit by bank officials to the Gulf state. The move would help rekindle Bahrain’s Islamic banking sector, which includes six retail banks and 18 wholesale banks. As of June, they held a combined $24.6 billion in assets, a 5.2 per cent drop from a year earlier. Turkey Finans is one of four Islamic banks in Turkey, and has a predominant focus on corporate banking.

A new study by International Finance Corporation (IFC) showed that around 35 per cent of SMEs in the Middle East and North Africa (MENA) are excluded from the formal banking sector because they seek Sharia-compliant products that are not readily available in the market. The study, which was carried out across nine countries, found a potential market gap of up to $13.2 billion for SME Islamic financing in the region with a corresponding depository potential of $9.71 billion to $15.05 billion across these countries. The study pointed out that apart from a high level of risk aversion that banks in the region have, poor regulatory environments, differing perceptions of Islamic finance, and a lack of relevant products were hindering the growth of Islamic SME banking.

DIFC Investments, the investment arm of the company running Dubai’s financial free zone, is reportedly planning to issue sukuk. The company has appointed banks and could come to market as early as September. Key banks on a 2012 loan deal are among those involved in the new sukuk. DIFC took out a $1 billion syndicated loan in May 2012 with Emirates NBD acting as financial adviser, while Standard Chartered coordinated the debt. Dubai Islamic Bank and Noor Bank also participated in the loan. The purpose of that loan was to refinance a $1.2 billion FRN sukuk that was maturing later that year. The new sukuk, if successful, could be used to refinance that 2012 loan.

The Islamic Development Bank (IDB) plans to issue a benchmark-sized Islamic bond in around May next year, the bank’s President Ahmad Mohamed Ali said. In February, AAA-rated IDB already priced a $1.5 billion, five-year sukuk. The new issue will reportedly be close to this year’s issue. Besides, IDB is considering whether to guarantee Tunisia’s proposed 700 million dinar ($431.79 million) debut sukuk. The Tunisian issue is aimed at helping the North African economy recover after being hit by the 2011 uprising. Moreover, IDB’s insurance arm, the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC), is also debating whether to extend a sukuk insurance product to boost the credit rating of Tunisia’s sukuk.

Kuwait Finance House (KFH) reported a 13 per cent rise in first quarter net profit which rose to 26.06 million dinars ($92.54 million) from 23.0 million dinars in the same period a year ago. Revenues were 1 per cent higher at 224.4 million dinars. Five analysts in a Reuters poll had estimated an average net profit of 32.76 million dinars for the quarter. KFH’s total assets were 17.3 billion dinars at the end of the first quarter, an increase of 16 percent compared to the same time last year while deposits rose 7 per cent to 636 million dinars. Shares in the company closed at 0.85 dinars on Thursday on the Kuwaiti stock market, which reopens on Sunday. Chairman Hamad al-Marzouq said KFH wanted to expand in Turkey and adjacent countries’ markets, without giving details.

Bahrain’s Khaleeji Commercial Bank and unlisted Bank Al Khair have dropped their plan to merge after failing to agree on terms. The primary reason for this decision is due to the non-agreement on the structure and the valuation of the deal. The two lenders had been in talks since June last year. The decision to call off the merger was reportedly mutual and the two banks will continue to maintain a close business relationship. Mergers in the Gulf banking sector are rare as powerful local shareholders are often unwilling to give up controlling positions except for vastly inflated valuations.

Bahrain’s Al Salam Bank has launched a listed sharia-compliant real estate investment trust (REIT) that will invest in a portfolio of Asian properties. The REIT will invest in between 15 and 35 properties and be managed by Swiss-based B&I Capital AG, with Al Salam providing seed capital for the fund. The Islamic lender did not reveal the expected size of the fund. Al Salam was an anchor investor in the Sabana Industrial REIT, which was listed on the Singapore exchange in 2010 and was one of the world’s first REITs to adopt Islamic principles. A handful of Islamic REITs have been launched, including Dubai Islamic Bank’s Emirates REIT in 2010. Malaysia now has three listed Islamic REITs.

Since sharia boards tend to be paid by the institutions whose activities they oversee, the scholars can be open to accusations of conflicts of interest. That's why Bahrain’s Waqf Fund has proposed mandatory external sharia audits for Islamic financial institutions. While the proposal is for Bahrain, it may have an impact on Islamic finance globally because of Bahrain’s central role in the industry. The proposal also ties in with growing pressure for reforms to the sharia oversight system in other countries, like Kuwait. The Waqf Fund will develop a framework for external sharia audits with a team of audit firms, scholars and the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI).

Islamic Development Bank is aiming to price a benchmark-sized Islamic bond issue on Thursday after releasing initial price guidance for a five-year deal. The supranational lender set initial guidance at mid-to-high 20s over midswaps. While no definitive size has been set for the issue, the first from the AAA-rated bank since May, it was expected to be benchmark-sized – which is traditionally understood to mean in excess of $500 million. The banks arranging the transaction are CIMB, Commerzbank, First Gulf Bank, HSBC, Natixis, National Bank of Abu Dhabi and Standard Chartered.