IslamicFinance.de

Pakistan's MCB Bank Ltd will set up a wholly owned Islamic banking subsidiary while dropping plans to take a stake in Islamic lender Burj Bank. Last month, MCB started due diligence on taking a 55 percent stake in unlisted Burj, which held assets worth 53.3 billion rupees ($547 million) as of December, but it said it would not proceed for commercial reasons. The move comes amid increased activity in Pakistan's Islamic banking sector, with regulators stepping up development efforts and lenders expanding operations. MCB currently operates the country's sixth-largest Islamic window with 28 branches. It will reportedly spin off its Islamic window into a separate subsidiary with 10 billion rupees in paid-up capital, using its existing Islamic banking branches to form the new entity.

Malaysia-based International Islamic Liquidity Management Corp (IILM) will reissue $860 million of its three-month Islamic bond next week, after expanding its issuance programme to $1.35 billion in January. The auction of the three-month sukuk, rated A-1 by Standard and Poor's, will be conducted on Apr. 17. In February, the IILM sold $490 million worth of three-month paper, designed to meet a shortage of highly liquid, investment-grade financial instruments which Islamic banks can trade to manage their short-term funding needs.

Morocco is set to give Islamic finance a second try, counting on closer regulation and a clearer legislative framework to resolve problems which plagued its first attempt in 2007. Morocco's parliament is considering a detailed bill that would regulate Islamic banks and issues of sukuk, and its passage - which could occur this year - is expected to prompt some Moroccan banks to establish dedicated sharia-compliant subsidiaries. Meanwhile, Morocco's central bank plans to set up a central sharia board to oversee the sector. Moroccan officials are also looking to develop Islamic finance in areas outside banking. Moreover, the ministry is studying the operations of real estate investment funds.

Etiqa Takaful Bhd, Malaysia's largest Islamic insurance provider and a unit of Malayan Banking Bhd, will issue a sukuk to raise 300 million Malaysian ringgit ($91.39 million). Etiqa is supported by a strong liquidity position although its family takaful business has seen poor growth due to unattractive pricing and a limited portfolio.

Sharia-compliant structures could help revive the securitisation market tarnished by the global financial crisis, providing a fresh source of funds for companies. Because Islamic finance shuns outright speculation it could offer the benefits of securitisation minus the weaknesses that led to the sub-prime mortgage crisis. While still at an early stage of development, the features of Islamic securitisation could help re-open a market that can fund a wide range of activities, including mortgages, car loans and working capital for businesses. Despite the sector's small size, several deals have proven the concept works, although existing legal and taxation issues have hindered greater transaction volume.

Bahrain's central bank governor Rasheed al-Maraj has said he expected further bank consolidation this year after a spree of tie-ups in 2013. The central bank has been encouraging smaller lenders to merge to bolster institutions weakened by a local real estate crash and fall-out from the island kingdom's political unrest in 2011, which has continued sporadically since then. In 2013, there were four separate examples of consolidation in the Bahraini banking sector, further tie-ups are expected to be announced by the end of the year. Moreover, the regulator is encouraging Islamic banks in the kingdom to get credit ratings to improve transparency. Maraj added he expected all banks would have a rating in the next two years.

The Islamic Development Bank has launched a $1.5 billion, five-year sukuk issue which will price shortly. The transaction, the AAA-rated lender's first in 2014, will price at a spread of 23 basis points over midswaps. Pricing is inside the guidance given by lead managers on Tuesday, which indicated that a benchmark-sized sukuk would price in the mid-to-high 20s over the same benchmark. Benchmark-sized 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.

The Islamic Development Bank aims to issue its first short-term sukuk this year, and is studying how it might start to guarantee Islamic bond issuance by member countries. A lack of short-term paper has been a significant constraint on the development of Islamic finance globally. The Malaysia-based International Islamic Liquidity Management Corp began trying to fill that gap last year with issues of three-month sukuk; it now has $1.35 billion outstanding. The IDB hopes to join the IILM in issuing short-term instruments this year. They could come in the form of 30-, 90-, 180- or 360-day sharia-compliant securities. The IDB is also looking to do longer tenors, however, the wider market isn't ready for longer-term Islamic bonds yet.

India's Ministry of Minority Affairs has enlisted a Kuala Lumpur-based body to help develop Islamic endowments, or awqaf, aiming to mobilise a large pool of assets in the country. India, with an estimated 177 million Muslims, has a large base of awqaf but many of their assets are far from being employed efficiently; their estimated annual income is just 1.63 billion rupees. Last month, Indian Prime Minister Manmohan Singh inaugurated the National Wakaf Development Corporation, to help management of the properties become more transparent. Efforts to strengthen India's awqaf could conceivably be a precursor to developing an Islamic banking sector in the country. However, its secular laws still largely forbid the selling of sharia-compliant banking.

India's Ministry of Minority Affairs has enlisted a Kuala Lumpur-based body to help develop Islamic endowments, or awqaf, aiming to mobilise a large pool of assets in the country. India, with an estimated 177 million Muslims, has a large base of awqaf but many of their assets are far from being employed efficiently; their estimated annual income is just 1.63 billion rupees ($26.3 million). The World Islamic Economic Forum Foundation will hold a roundtable later this year to discuss ways to improve management of India's estimated 490,000 waqf properties. However, efforts to strengthen Islamic finance in India have in the past met strong opposition from bureaucrats in the finance ministry and banking circles.

The sharia compliant arm of Malaysia-based Public Bank has submitted a proposal to the central bank for a 5 billion ringgit ($1.5 billion) Basel-III compliant Islamic bond program. Public Islamic Bank, a wholly-owned unit of Public Bank, may emerge as the third issuer of Basel III compliant sukuk. AmIslamic, which established a Basel III compliant sukuk program for 3 billion ringgit on Feb 13, sold 200 million ringgit on Wednesday. RHB Capital received approval from the securities commission for a similar 1 billion ringgit program earlier this month. Besides, the country's conventional banks have begun issuing Basel III bonds; Public Bank issued medium-term notes worth 1 billion Malaysian ringgit last September.

Bahrain-based Gulf Finance House has announced its fourth-quarter net profit has more than doubled due to revenue derived from investments. The investment firm made a net profit of $5.2 million in the three months to Dec. 31, up from $2.5 million in the prior-year period. However, for the 2013 full year, GFH's net profit fell 37.2 percent to $6.3 million. This decline came despite a 20 percent reduction in operating costs, as the firm continued to aggressively cut expenses in the wake of a number of debt restructurings in recent years. GFH, through its Dubai-based subsidiary GFH Capital, agreed to sell 75 percent of Leeds United to Italian Massimo Cellino earlier this month.

Fitch Ratings has assigned Export Import Bank of Malaysia's (MEXIM) USD300m 2.874% sukuk due 2019 a final rating of 'A-'. The Islamic bonds are issued under MEXIM's USD1bn multi-currency sukuk programme established through EXIM Sukuk Malaysia. The sukuk rating is the same as MEXIM's Long-Term Issuer Default Rating (IDR). EXIM Sukuk Malaysia, a special purpose vehicle (SPV) incorporated solely to facilitate sukuk issues, will use the sukuk proceeds to purchase eligible assets from MEXIM. However, any deterioration in the Malaysian sovereign's creditworthiness and ratings or in the government's propensity to support MEXIM would hurt the IDR and hence the sukuk rating.

The Malaysia-based International Islamic Liquidity Management Corp (IILM) will issue a $490 million three-month Islamic bond next week, after expanding its issuance programme to $1.35 billion in January. The auction of the three-month sukuk, rated A-1 by Standard and Poor's, will be conducted on Feb. 25. Last month, the IILM sold $860 million worth of three-month paper, designed to meet a shortage of highly liquid, investment-grade financial instruments for the short-term funding needs of Islamic banks. Since the programme's launch, primary dealers have held on to the IILM instruments after auction and there has been little if any secondary market trade in them.

Brunei will introduce new guidelines for its takaful sector by June, in order to standardise the way agents are managed by firms. The guidelines will regulate commission rates payable to agents and the qualifications required for them to sell takaful products, Osman Jair, chairman of industry body Brunei Insurance & Takaful Association (BITA) said. An inter-company agreement will be signed, so companies will be better disciplined and the correct treatment of agents ensured. The impending guidelines are being reviewed by industry consultants and Autoriti Monetari Brunei Darussalam (AMBD), the country's central bank.

Italy is seeking trade and investment with wealthy Gulf Arab states as a way to grow out of its debt problems. Gulf investors have already shown considerable interest in Italy's luxury good firms; in 2012, for example, Italian fashion brand Valentino was bought by Qatar's royal family. Moreover, Kuwait's sovereign wealth fund announced this month that it would invest 500 million euros ($685 million) in Italian companies in coordination with the Italian government's own strategic investment fund. Italy made a similar deal with Qatar last year. These activities should include a review of existing regulations. Currently, however, only broad discussions are taking place with Italian policy makers and no specific agenda is in place. Italian companies have explored Islamic financing options in the past but did not do deals, partly because of a lack of regulatory support in Italy.

Bahrain-based Islamic lender Al Baraka expects at least 15 percent growth in net profit this year as its business recovers across a region hit by the Arab Spring unrest. The growth will also be fuelled by the company's entry into the Moroccan and Libyan markets and expansion in Tunisia. In Syria, where the bank has 10 branches, it has not been able to expand operations since the 2011 start of the civil war. The bank's fast growing 30-branch Algerian subsidiary has now captured nearly 5 percent of the country's foreign trade business and plans are under way for further expansion. The lender hopes to expand its global branch network from a current 480 to around 560 branches by end of 2014, with half of the 84 new branches opened in Turkey and Pakistan. The focus of expansion remains fast growth areas in the Middle East and Asia such as Pakistan and Indonesia because the Gulf is overbanked.

Luxembourg's parliament could pass a bill as soon as two months from now to facilitate its first issue of sovereign sukuk, though an upcoming budget vote may delay approval for five months. Last month, the Luxembourg government presented a bill to parliament to allow the securitisation of assets for a proposed sukuk worth 200 million euros ($275 million), part of efforts to boost the tiny state's Islamic finance credentials. Lawmakers are now studying the bill's conformity to existing laws, while the actual structure and issuance of the sukuk depends on the finance ministry. Legal filings show Luxembourg's sukuk would be denominated in euros and listed on an exchange, but such details are not final.

Kuwait's takaful firms are still struggling in a crowded market that faces cut-throat competition. This has led to stagnant growth and persistent losses for takaful firms operating in Kuwait, raising doubts about the sector's long-term viability. In a market with 32 insurers, takaful firms say they are at a disadvantage to their conventional peers which have built solid customer bases and amassed large financial surpluses. Kuwaiti takaful firms posted a combined 47.4 million dinars ($167.7 million) in premiums in 2012, an 18.7 percent share of the total. However, many companies in the sector have failed to post consistent profits. Furthermore, the takaful sector lacks a dedicated supervisory body, leaving an opening for negative competitive practices. In the meantime, looking abroad may be the only good option for the Kuwaiti takaful firms which can afford it.

This month, Oman's insurer Al Madina Takaful converted itself from a conventional insurer to a takaful company. It changed its conventional insurance clients to takaful policies after a customer education process, reportedly without client exits or other problems. In the next two years, the firm plans to add up to seven new branches to its network of three, and distribute products via Islamic banks, a practice known as bancatakaful. Two new firms could soon follow in Al Madina's footsteps: Takaful Oman Insurance and Oman United Insurance. However, their entry could crowd the market further and add to pressure on profitability. The Capital Market Authority (CMA) has yet to publish its final rules on takaful, while an insurance law is still in the draft stage.