IslamicFinance.de

Islamic banks in the UAE recorded a decline of around 17 per cent in its net earnings in the first half of 2010 despite a sharp rise in the profits of the Abu Dhabi Islamic Bank (ADIB). Individually, several national banks reported growth in their net income in the first half of 2010, including the government-controlled National Bank of Abu Dhabi (NBAD) and First Gulf Bank (FGB). The UAE's largest bank, Emirates NBD, reported a 51 per cent fall in profits because of its exposure to Dubai World. Central Bank figures showed UAE banks are pushing ahead with a post-crisis provisioning drive because of their exposure to Dubai World, the domestic real estate sector and two Saudi financially troubled family businesses. According to a key Western financial institution, UIAE banks have emerged as more vulnerable to real estate downturns than those in other Gulf oil producers because of their massive lending for that sector.

Jakarta-based Bank Syariah Mandiri joined Islamic lenders worldwide to use Ramadan to remind Muslims to obey the teachings of the Prophet Muhammad that ban interest. Emirates NBD of Dubai waived payments on personal loans during Ramadan, while Maybank Islamic in Kuala Lumpur started automating charitable donations. Banks in Indonesia, the world’s most populous Muslim nation, offered limited-edition products to generate Ramadan-linked revenue and publicity. Bank Syariah Mandiri, the Islamic unit of Indonesia’s largest bank by assets, Bank Mandiri, collaborated with a local TV operator on a program aimed at promoting Shariah-compliant banking during the holy month. Shariah finance prohibits the charging of interest as well as investments tied to gambling and alcohol. Returns are generated as a share of profits from assets.

UK insurance giant Legal & General has signed a partnership with Islamic Bank of Britain (IBB) to make two Islamic home finance products available to financial intermediaries. The Home Purchase Plan (HPP) is IBB’s flagship Islamic mortgage product and is a mortgage alternative, which offers home finance without the use of interest. The Shari’ah-compliant product allows customers to purchase their home in partnership with the bank on a leasing (Ijara) and diminishing partnership (Musharaka) agreement. Islamic Bank of Britain pioneered Shari’ah-compliant retail banking in the UK and has launched a wide range of products, including the Home Purchase Plan (the halal mortgage alternative) Current Accounts, Savings Accounts and Personal Finance. Several of the bank’s products remain unique in the UK retail market.

NEW tax laws will level the playing field between Islamic banks and conventional banking, say banking and tax analysts. The new laws are intended to encourage foreign direct investment into SA, says Amman Muhammad, MD for Absa Islamic Banking. Islamic banking is in its infancy in SA. Albaraka Bank and the Islamic Bank were the first Islamic banks to be granted a licence by the Reserve Bank in the 1980s. The proposed amendments to the Income Tax Act take into account three different types of Islamic financing on which one can develop products. First , mudurabah, a form of deposit where the client invests with a bank and, the bank invests deposits in Sharia -compliant enterprises or products. Second , murabaha, which is a mark-up financing transaction offered by a bank so that a client can obtain financing for various assets, such as property and equipment. Third, diminishing musharaka, a partnership arrangement usually used for project financing. Mr Muhammad hopes that the implementation of a sovereign sukuk (Islamic bond) will be the next step by the government.

On the verge of collapse, Kabul Bank operates in a financial system we would barely recognise. SHANE Warne's post-cricket pursuits and the murky nightmare that is Afghanistan would not appear to be obviously connected. It's a mess, not least because Kabul Bank is the vehicle used to pay Afghan government salaries, mostly the military and police, the very same - and sometimes mutinous - security forces that the US, Australia and other members of the Western alliance trying to keep Afghanistan safe from extremists say they will, eventually, hand their duties to. The head of the country's central bank, a close associate of the ruling Karzai clique, unconvincingly says everything is fine at Kabul Bank and blames the media. Before returning to Kabul to again run the central bank (the Taliban interrupted his first stint in 1996), this particular governor sold carpets in the US.

Seeking to diversify its financial industry after a banking crisis, oil-rich Kazakhstan is drawing on Arab and Malaysian investment in an effort to build an Islamic finance industry among its 13mn Muslims. Its success may depend on the fate of pioneer investors and the commitment of its secular government to clear the way for a long-awaited sovereign issue of sukuk, or Islamic bonds, which could prompt other issuers to follow. Al Hilal, owned by the government of Abu Dhabi, was the first bank to respond when Kazakhstan passed new laws last year to allow an Islamic finance industry. The bank opened its Kazakh offices in March 2010. Though modern Islamic finance began three decades ago, its major principles, such as a prohibition on paying interest, would have been familiar to Muslim traders on the medieval Silk Road through Kazakhstan and Central Asia. Investors, though, are cautious. The financial crisis humbled the once-proud Kazakh banking sector; international creditors were forced to write off billions of dollars of debt in a restructuring process that followed local bank defaults.

As Russia's 20 million Muslims observe Ramadan, the country's banks are beginning to wake up to the growing opportunities offered by Islamic banking. Last summer VTB Capital opened an office in Dubai. The bank also plans to launch other Islamic projects, investing in Russian property together with the Sultan of Oman's State General Reserve Fund. However, there are still major obstacles to developing Islamic finance, including a lack of banking legislation that meets Islamic rules.

MAYBANK, Malaysia's biggest lender, has set up a dedicated Islamic banking hub here as part of a concerted push to expand the business beyond its home market, as it strives to gain an edge over rivals vying to stamp their name on South-east Asia. About one-third of the bank's Islamic financing portfolio comprises corporate and business loans, while the rest includes home loans, receivables from car and equipment hire-purchase financing schemes, credit cards and personal loans, he said. In Indonesia, Maybank is converting its subsidiary Bank Maybank Indocorp into a full Islamic bank that will be re-branded Maybank Syariah Indonesia. It will then use the distribution network of Maybank's other subsidiary there, Bank Internasional Indonesia, which has 290 branches, to sell Islamic banking products and services.

In May this year the National Treasury issued proposed tax amendments as part its stated intention of putting Islamic banks in South Africa on an equal footing with traditional conventional finance. The Proposed Tax Amendments address the Mudarabah (investment), Murabaha (mark-up financing transaction) and Diminishing Musharaka (partnership arrangements generally used for project or home financing) financial structures. The proposed Tax Amendment document acknowledges that, "Tax has become a hindrance to the vibrant and growing Islamic financial market" in South Africa. While these proposed amendments may sound complicated the critical elements for Muslims in South Africa are the real commitment of National Treasury to ensure that South African Muslims enjoy the same benefits from the formal banking sector that are currently enjoyed by other South Africans and that South Africa is positioned to become a key financial hub on the African continent, where Islam is the majority religion.

Finally responding to a strong public demand, the National Bank of Ethiopia (NBE) is about to approve a directive that paves the way for the establishment of Islamic banks. The directive also opens doors for currently operational commercial banks to create an interest-free banking wing. To accommodate muslims, who are by Sharia’h – Islamic law – prohibited from taking or giving interest, commercial banks are currently offering zero interest. However, the sector will, according to Prime Minister Meles Zenawi, remain closed from foreign banks involvement. After the establishment of the first private commercial bank in Dubai, more than fifty interest-free banks were established in Muslim countries and as well as in European countries such as Denmark, Luxembourg, Switzerland and the UK.

Malaysia, the world’s largest market for sukuk, plans to improve its legal system to become an alternative location to the U.K. for resolving international Islamic finance disputes. The goal is to position Malaysian laws as the law of choice for Islamic finance transactions globally. Disputes about Shariah principles are a risk to the market for sukuk, bonds complying with Islam’s ban on payment of interest. Persian Gulf companies have traditionally based cross-border contracts on U.K. law to take advantage of the country’s developed legal system and neutrality, according to Unicorn Investment Bank BSC. The challenge will be to gain acceptance in the Middle East because of different religious interpretations in various jurisdictions. A group of scholars in Kuala Lumpur is helping to set up a committee to prepare the first global certification for Shariah experts said Aznan Hasan, the president of the oversight committee

Malaysia's largest lender Maybank on Friday announced plans to expand its Islamic finance business in Singapore and Indonesia to tap the markets' demand for such services. In Indonesia, home to the world's largest Muslim population, the bank will open at least one new branch a week to increase its network. Maybank chief executive Abdul Wahid Omar is also planning to expand its Islamic services in Singapore, whose population is 13 percent Muslim. Maybank is determined to become the number one Islamic bank in ASEAN. Maybank is aiming to break into the world's top 10 Islamic finance centres, Abdul Wahid said. Bank Melli Iran is the global leader in Islamic finance.

Consumer banking will continue to be an important revenue generator for banks with home loans being one of the major areas of focus amid the prevailing relatively low interest rates. Apart from home loans, the other sectors in consumer banking which banks are focusing on to beef up their revenue streams are car loans, credit cards, personal loans and wealth management. RAM Ratings head of financial institution ratings Promod Dass said the relatively low interest rate environment had fuelled consumer lending, which represented more than half of the banking system’s loans. Malaysian Rating Corp Bhd vice-president and head of financial institution ratings Anandakumar Jegarasasingam said the main challenge for banks would be to ensure the asset quality of household loans. Ernst & Young Malaysia partner (Assurance) Chan Hooi Lam foresee consumer banking facilities like car loans, purchase of residential properties and credit cards to continue its growth momentum into next year. RHB Banking group director of retail banking Renzo Viegas said that apart from credit cards, the focus would also be in debit cards as the bank saw tremendous growth potential in this area.

The Jeddah-based Islamic Development Bank (IDB) is gearing up for its latest sukuk offering under its Medium Term Note (MTN) or Trust Certificate Issuance Program. The IDB, according to Mohamed Tariq, senior adviser to the President Ahmad Mohamed Ali, was poised to go to the international financial markets in September this year. In Kuala Lumpur last week, Abdul Aziz Al-Hinai, vice president, finance, IDB, confirmed that the IDB plans to go to the market in the last quarter of 2010. Another international rating agency, Moody's Investors Service, last month had already reaffirmed for a fifth consecutive year the Islamic Development Bank's Aaa long term and P-1 short term foreign currency issuer rating with a stable outlook. Moody's stated that the IDB's rating is strongly supported by the commitment of its member countries, and highlighted that the capital base of the bank is strong, its operational assets continue to perform well, it has a high level of liquidity and very low level of debt. Moody's concluded that the bank's risk profile is likely to remain healthy over the medium term.

Kuveyt Turk Katilim Bankasi AS is planning a second sale of Shariah-compliant debt for 2012. Kuveyt Turk, the Istanbul-based bank owned by Kuwait Finance House KSC, may sell more than $100 million of five-year sukuk. Islamic bond offerings may accelerate in the next 18 months, led by countries new to the market, Mohamed Damak, a Paris-based credit analyst at Standard & Poor’s. Policies to promote assets that follow Islamic law are spreading to Europe from Asia.

A £20m capital injection into Islamic Bank of Britain will help develop more home loans in line with Sharia law, an expert from Defaqto has said. David Black, banking expert from Defaqto, said: “The £20m capital investment will enable the IBB to grow its Islamic mortgages. With some other banks recently reducing their involvement in Sharia loans in the UK, the IBB’s capital injection will provide fresh impetus for what will be a growth area.” Its products are structured in a different way to those provided by conventional banks. Instead of a traditional mortgage, customers pay monthly rent and purchase instalments over the agreed period to the bank on the basis of which the bank gradually sells its share of the property to the customer. The recent cash injection has meant IBB has launched two new home loans. “With a fresh injection of capital we are well placed to grow the business through our Home Purchase Plan products. The products will offer peace of mind for customers, both financially and spiritually, which is especially important in the holy month of Ramadan” , said Sultan Choudhury.

Bahrain (665km²) is smaller than King Fahd airport (780km²) and has achieved being the biggest centre of Islamic finance in the world, democracy, its very own airline. Moody's, a ratings agency, says it doesn't think Bahrain has sufficient cash to be able to underwrite its banking sector anymore, and has consequently downgraded the investment rating it bestows upon the country from A2 to A3. "Reduced fiscal flexibility makes it more challenging potentially to meet contingent liabilities arising from Bahrain's financial sector, which is relatively large compared with the government's resources," Moody's said.

Standard & Poor's assigned 'AAA' rating to Islamic Development Bank (IDB) $3.5 billion trust certificate issuance program. Standard & Poor's said the IDB's ratings are underpinned by strong shareholders' support, very high level of capital and liquidity and a good asset portfolio with historically very low losses and preferred-creditor treatment.

A leading economist says the practice of jailing debtors is morally wrong. In the rest of the world it is the banks’ responsibility to try to assess the credit worthiness of individuals. Prof Batchelor is trying to rebuild Dubai’s image. He thinks that Dubai could treat people who might have stayed and set up a business a little better. They shouldn’t be faced with the idea of going elsewhere in the world. Abdulfattah Sharaf, HSBC's head in the UAE, keeps his idea that jailing debtors remained an effective way for banks to retrieve bad loans.

Saudi based Alinma Bank said that it would grant a $1bn credit facility to SABIC, plugging a financial gap at the petrochemical group. SABIC Chief Executive Mohamed al Mady declined to comment while Chief Financial Officer Mutlaq al Morished could not immediately be reached for comment. Alinma said Morished signed the agreement on behalf of SABIC. Ratings agency Moody's assigned the planned bond an A+ rating and said it understood it would be used to refinance or repay debt at SABIC Innovative Plastics Holding, the renamed GE Plastics.