IslamicFinance.de

The Pan-Borneo Highway in East Malaysia, a jumbo project estimated to cost 27 bin ringgit ($9.16 bn), is finally starting to take shape as the federal government prepares to launch initial funding to start the construction. The selected group of banks includes the four top Malaysian lenders: CIMB, AmInvestment Bank, Maybank and RHB. About 60 per cent of the project will eventually be funded with proceeds from ringgit-denominated Islamic bonds to be issued through federal government funding vehicle DanaInfra Nasional. The first batch of bonds, wrapped with a federal government guarantee, is expected to raise around 10 billion ringgit. The launch is timed for August or September.

As Russia's economy continues to stagnate, the country's 83 regions are being forced to compete with one another for outside investment. Four of Russia's Muslim republics, Tatarstan, Bashkortostan, Chechnya and Dagestan, have set their sights on Muslim states in the Middle East and Southeast Asia. Despite their economic differences, Russia's Muslim republics have been uniformly hurt by the collapse in global oil prices. Though Islamic financing has been legally banned in Russia, the Muslim republics have simply ignored it outright, issuing transactions under Islamic banking guidelines or negotiating with foreign financial groups to start implementing them. Tatarstan and Chechnya discussed several construction projects, but the question now is whether Russia will allow Gulf state financing to continue. Most likely it will continue to put national security and Russian unity ahead of the needs of the Muslim population.

Malaysia’s second-largest pension fund plans to buy more bonds to hedge against another interest-rate cut as it moves further toward becoming a full-fledged Islamic entity. CEO of Kumpulan Wang Persaraan, Wan Kamaruzaman Wan Ahmad said the fund is considering lowering its 5% minimum return target because of the uncertainty in global markets. He also added that this low interest-rate environment, low corporate returns, lower dividend yields will prevail for a much longer period. KWAP bought 30-year Malaysian government bonds at a yield of 4.613% on June 29, days after the UK voted to leave the European Union. Wan Kamaruzaman said the fund will likely keep its 2% allocation to UK assets, despite the results of the referendum, because it adds diversification to the portfolio.

In #South Africa First National Bank (FNB), Al Baraka and HBZ Bank are the only financial institutions offering Islamic banking services. These banks offer a range of Islamic cheque accounts, Islamic savings accounts and Islamic investment accounts as well as vehicle, property and asset finance. CEO of FNB Islamic Banking Amman Muhammad says the bank has seen a consistent rise in the number of South Africans taking up the bank’s transactional banking and investment, vehicle and property finance products irrespective of faith. Customers are looking for an alternative banking form and FNB can offer a principles-based approach. Muhammad says the normal regulatory and risk rules apply to all Islamic banking products.

According to Standard & Poor’s the global sukuk market is expected to undergo correction for the next 6 to 18 months. The total issuance of sukuk fell in the first half of the year by 12.5% in contrast with the booming conventional debt as the oil exporting countries tapped the market to raise funding. The correction in the sukuk space started with Bank Negara Malaysia’s decision last year to stop the issue of short-term sukuk and switch to other instruments for liquidity management for Islamic financial institutions. S&P global head of Islamic finance Mohamed Damak said the positive news for sukuk is that the European Central Bank is opening its liquidity tap and with yields low, that could push investors to look at the sukuk market. He added that the sukuk industry needs more standardisation otherwise volumes will likely remain low.

Recent regulations on sukuk are helping growth in Oman's Islamic banking sector, with sharia-compliant lenders gaining ground. Growth of Islamic banking is far outstripping that of the conventional banking segment with Islamic banking assets up more than 62% year-on-year (y-o-y) at the end of March. In contrast with the performance of the Islamic segment of the market, assets of conventional commercial banks rose by 9.1% y-o-y to the end of March to OR28.6bn ($74.3bn). The new regulations released by the Capital Market Authority (CMA) in April clarify requirements for issuing sukuk and provide a legal framework. According to Sheikh Abdullah bin Al Salmi, executive president of the CMA, the new regulations are expected to expand the range of investment instruments available in the sector.

Indonesia's Islamic bond yields have fallen faster than Malaysia's in the past three months, as the nation's higher-yielding notes do better at attracting foreign investors. Yields on rupiah sukuk due 2019 slid 37 basis points in the period, compared with 24 basis points for equivalent paper in Malaysia. Indonesia's three-year Islamic bonds pay 7.16%, while those in Malaysia yield 3.26%. Indonesian bonds are the best performers in South-east Asia this year after the government passed a tax amnesty bill on undeclared income held overseas. Bank Negara Malaysia lowered borrowing costs for oil, as well as its projection for consumer prices to 2%-3% in 2016, from 2.5%-3.5 %. Currently both nation's currencies are seeing a revival.

Deloitte and the Islamic Research & Training Institute (IRTI) have launched a new whitepaper entitled "The catalysts for change: Strategic priorities in governance and regulation in Islamic Finance practice." It is the first publication of a series of whitepapers aiming to address industry issues and present practical analyses. According to Joe El Fadl, Partner at Deloitte Middle East, the primary goal of the series is to provide a forum through which best practice, knowledge and Islamic finance research can be shared with stakeholders. It also presents the progress in governance, regulatory compliance, risk, sustainable business models, financial reporting, transparency and leadership.

For over three decades Turkish governments did not dare speak the name Islamic banking for fear of being branded radical. These institutions were officially named special finance houses, profit-and-loss banks, interest-free banks and more recently, participation banks. Now Islamic finance public policy is elevated to a pivotal position in the official management of the Turkish economy.
Ankara has recently embarked on a wholesale restructuring of its participation banking sector, which has seen the entry of three new banks including Ziraat Participation Bank, Halk Participation Bank and Vakif Bank. This brings the total number of participation banks in Turkey to seven including the four established ones, Kuveyt Turk Participation Bank, Albaraka Turk Participation Bank, Turkiye Finans and Asya Bank. Ankara is also keen in making Turkey a leading proponent of Islamic finance and developing Istanbul into an international financial centre.

1Malaysia Development (1MDB) agreed to the Request for Arbitration filed by International Petroleum Investment Company (IPIC) and Aabar Investments (Aabar). 1MDB is confident of its legal position and reiterated that, notwithstanding the dispute with IPIC, it would continue to honour its current debt obligations. Last month, 1MDB paid the RM1.579 million interest coupon on the RM2.4 billion Bandar Malaysia sukuk, due 2024. In May, 1MDB made a scheduled coupon payment amounting to RM143.75 million on its RM5 billion 5.75% Islamic Medium-Term Notes due 2039.

Vishwa Hindu Parishad expressed reservations over the Islamic Development Bank’s plan to open its branch in India. VHP joint general secretary Surendra Jain is currently attending a two-day meeting in Ahmedabad to discuss various issues. He said they will also deliberate on the strategy to oppose the opening of the new branch. Although IDB recently announced that it will open its first Indian branch in Ahmedabad, VHP insists that such banks are against the Constitution and banking norms set by RBI.

Swiss insurer Zurich Insurance Company has bought MAA Takaful (MAAT) from MAA Group and Solidarity Group Holding to expand its insurance and takaful business in Malaysia. Zurich Insurance Malaysia CEO Philip Smith said the company will be able to provide a wide range of insurance and takaful solutions across multiple customer segments, supported by the technical and servicing expertise in the wider Zurich Group. The acquisition cost RM525 mn and about RM400 mn was paid at the closing of the transaction. The remaining amount will be paid on the third anniversary after the closing.

Somaliland's President has signed the Central Banking Act into law. According to Central Bank Governor Abdi Dirir the Commercial Banking Act will be passed in the next three to four months.
Back in 2012 the financial sector agreed to have a Dual Banking system where both Conventional and Islamic banking systems operate in the country. However, the Commercial Banking Act is more than four years overdue. Economically, Somaliland's longterm competitiveness can only be ensured by introducing the Dual Banking System in the country.

The tender for the sale of Bank Asya is set to take place on July 14. Turkish Deputy Prime Minister Nurettin Canikli stressed the importance and the magnitude of the sale, as Bank Asya was subject to financial maladministration by the previous management. While sunken credit totaled TL 2.2 billion ($750 million), credit volume in September 2015 reached TL 6.5 billion. The bank's capital dropped to TL 1.2 billion in 2015. Upon inspection of the actual amount of sunken credit, Bank Asya's cumulative losses totaled TL 1.6 billion.

In #Pakistan Faisal Private Bureau (FPB) has transferred its entire shareholding in Faysal Bank Limited (FYBL) to Ithmaar Bank. On June 30 FPB has transferred over 38.686 million of its stakes in Faisal Bank into Ithmaar's CDC account. However, FYBL secretary Aurangzeb Amin said the transaction had no affect in terms of change of ownership. He also added that the State Bank of Pakistan had already granted its approval for transfer of shares to Ithmaar Bank on April 29, 2016.

1Malaysia Development (1MDB) has paid the RM1.579 million interest coupon on the RM2.4 billion Bandar Malaysia sukuk due in 2024. This is the second interest payment made by 1MDB since its dispute with the Abu Dhabi’s state-owned investor, International Petroleum Investment (IPIC). The first payment was in May, when 1MDB made a scheduled coupon payment amounting to RM143.75 million on its RM5 billion 5.75% Islamic medium-term notes due 2039. The two payments strongly indicated that the company had ample liquidity to make interest payments. According to 1MDB president Arul Kanda Kandasamy 1MDB was focused on resolving the dispute with IPIC and would continue to honour current debt obligations.

Islami Bank is the largest and most profitable bank in Bangladesh. It has 10.7 million depositors, 27% of Bangladeshi remittances and 23% of the small and medium enterprises market. While most of the 56 banks in the country are plagued by rising nonperforming loans, poor management and operational inefficiency, Islami Bank isn’t. The bank has a rigorous recruitment and training process and the churn at the company is low. Despite its success, the bank has been dogged in recent years by suspicion that it has been used by Islamic terrorists. CEO Mohammad Abdul Mannan is cognizant of the image problem. No wrongdoing has been proven, but Islami Bank seems to be attending to image cleanup.

In 2008 the #Qatar owned Project Blue entered into an arrangement to acquire the former Chelsea Barracks in West London from the Ministry of Defence for £959 million. Monies were advanced by Masraf al Rayan Bank using an ijara arrangement for the transaction. Now the Court of Appeal has found that the Revenue and Customs authority should have sought Stamp Duty Land Tax from the bank rather than the purchaser, but was apparently out of time to raise such an assessment. Eventually, the machinery in the Finance Act 2003 was not up to the task of ensuring an ijara was treated for tax purposes in the same way as any other transaction. As the adoption of Islamic Finance instruments increases, British tribunals, courts and regulators will need to understand the structures more clearly.

Oil prices have plummeted sharply since mid-2014, putting an end to the commodities super cycle that started a decade ago. S&P Global Ratings expects oil prices will remain substantially below peak levels and stabilize at $50 per barrel by 2018 and beyond. While governments affected by the price drop are looking to spending cuts, taxation, and the privatization of state companies, their financing needs remain significant. Despite the significant drop in oil price since mid-2014, total sukuk issuance didn’t pick up in 2015 or the first half of 2016. In fact, issuance actually dropped in the first half of 2016 by 12.5% compared with the same period in 2015. Issuances in the second half of 2016 will continue to depend on monetary policy developments and volatility in developed markets as well as the policy actions of sovereigns in Gulf Cooperation Council (GCC) countries and Malaysia.

The Islamic Financial Services Board (IFSB) has announced the fourth dissemination of data on financial soundness and growth of the Islamic banking systems from 17 IFSB member jurisdictions, covering quarterly data from December 2013 to Q3 of 2015. The 17 member countries include Afghanistan, Bahrain, Bangladesh, Brunei, Egypt, Indonesia, Iran, Jordan, Kuwait, Malaysia, Nigeria, Oman, Pakistan, Saudi Arabia, Sudan, Turkey, and United Arab Emirates. The total assets of the Islamic banking industry grew from $1,216 billion in 2014Q3 to $1,245 billion in 2015Q3. Total funding/liabilities declined from $1,007 billion in 2014Q3 to $946 billion in 2015Q3. Financing by Islamic banks from the jurisdictions participating in the PSIFIs project reached $710 billion in 2015Q3 from $681 billion in 2014Q3.