IslamicFinance.de

Islamic finance has largely been a priority area in Malaysia for three decades and it is not about to slow down. The World Bank's recent Global Report on Islamic Finance highlighted Malaysia as having the largest Islamic banking assets in the region with US$156.7 billion (RM697.15 billion) as at 2013. Malaysia is also the second-largest economy in terms of total syariah-compliant financial assets. However, the report also suggested the need to address several challenges like the need for alternative investments. On a positive note, the report said the syariah governance framework was advanced in Malaysia. Within Asia, Malaysia has been dominating the sukuk issuance market. The US dollar-denominated sukuk have been growing, but sukuk denominated in Malaysian ringgit are growing even faster and dominate the market.

According to AllianceDBS Research, a new wave of merger and acquisition (M&A) activities in the Islamic banking space is plausible, although the timing remains the key risk. Potential M&A candidates include the Malaysia Building Society (MBSB), and Bank Muamalat Malaysia (Muamalat). The research house added domestic Islamic financing growth was expected to continue outpacing conventional loans growth, driven by regulatory push for internationalisation of Islamic finance. This was mainly underpinned by a growing push by banks to fulfil Bank Negara Malaysia’s target of 40% proportion of Islamic financing. AllianceDBS predicts the big game-changer will be product innovation. The research house named the main Islamic banking proxy, the BIMB Holdings (BIMB) as the largest Shariah compliant financial institution with strong potential to lead product innovation.

Islamic finance is the area where Malaysia leads the world. Malaysia has 54% of global sukuk outstanding, 314 Islamic investment funds worth RM100.6 billion ($22.7 billion), and an Islamic capital market that has tripled in size since 2005, accounting for 60.1% of the total Malaysian capital market. In August the Employees Provident Fund (EPF) launched its Shariah savings scheme to give members the option to convert their conventional account to an Islamic one. It has said it expects to invest an average of RM25 billion in Shariah assets every year and it intends to allocate a minimum of 45% of its assets into Shariah-compliant forms. Thus, EPF has sufficient scale to be very interesting to asset managers worldwide. Largely through that mechanism, there are now 20 fully fledged Islamic fund management companies operating in Malaysia.

Finance Minister Ama Muhith has sought explanation from Bangladesh Bank about allegations of foreign investors of Islami Bank Bangladesh Limited (IBBL). The Islamic Development Bank (IDB) alleged that the IBBL board made the recent high-level changes in the absence and without consent of foreign shareholders. Two foreign investors including IDB hold 52% shares of the IBBL. At the board meeting January 5, former bureaucrat Arastoo Khan was elected chairman of IBBL. Changes were also brought to the posts of managing director and heads of various committees of the bank and also to chief of the Islami Bank Foundation. At present, of the 16 board of directors, seven are independent directors, seven from little known companies and two are foreign sponsors’ representatives.

The Islamic Development Bank (IDB) expressed dismay at the recent changes that took place at Islami Bank Bangladesh (IBBL). In a letter to Finance Minister Ama Muhith, IDB said the foreign shareholders feel that the governance of the bank has been taken away from them, although they own more than 52% of the shares, while IDB has a 7.5%. The IDB also criticised the way a board meeting at IBBL is convened. Furthermore, the IDB voiced its concern about the recent changes, about appointing the new managing director in an abrupt manner, not following the rigorous recruitment process. As a response to IDB's letter, Islami Bank said in a statement that all banking rules have been followed properly.

The government of Indonesia plans to sell another series of sharia-compliant government retail bonds (Sukri). The offering period is planned for 4 February-2 March 2017. In last year's Sukri issuance the Indonesian government set an indicative target of IDR 30 trillion (approx. USD $2.2 billion) for its SR-008 series. However, due to robust demand authorities raised a total of IDR 31 trillion. The three year SR-008 bonds carry a fixed coupon of 8.3% per year. It was the government's biggest ever sale of Sukri bonds. In 2017 the Indonesian government plans to sell IDR 597 trillion worth of bonds, mostly rupiah-denominated government bonds. Robert Pakpahan, Head of the Debt Office within Indonesia's Finance Ministry, earlier said Indonesia will offer retail bonds twice this year, consisting of Sukri and Indonesian Retail Government Bonds.

#Singapore's Sabana Shariah Compliant Industrial Real Estate Investment Trust (REIT) clarifies the article published by Straits Times titled "Angry investors want REIT manager kicked out". Sabana REIT stated that the closing price of its unit was 37 cents on 24 Jan 2017. Sabana REIT clarified that the manager's fee structure is in line with market practice in Singapore's REIT sector. All acquisitions were approved by board of directors in accordance with property funds appendix and sgx-st listing manual.

Yinson Holdings' subsidiary Yinson Production (West Africa) has converted its existing US$780mil conventional loan to an Islamic Murabahah term financing facility. Group executive chairman Lim Han Weng said this was the largest Islamic facility for floating production storage and offloading (FPSO) financing to-date. Maybank Investment Bank acted as the coordinating bank for the conversion while Maybank Islamic acted as the syariah adviser. Upon completion of the conversion, Yinson is expected to meet the debt over total assets financial ratio benchmark required by the Securities Commission for a syariah-compliant security.

Bank Islam's managing director Datuk Seri Zukri Samat said he would not extend his contract when his tenure ends in June this year. When asked on his successor, Zukri said there was still plenty of time to search for a successor since it was only January. On Bank Islam Visa Infinite MPN credit card-i, he said it was introduced in response to Bank Negara’s call for a cashless society. He said the collaboration with MPN was the bank’s continuous cooperation with the academic institutions starting with the introduction of the UniDebit card in 2012. Meanwhile, MPN chairman Professor Tan Sri Zakri Abu Hamid welcomed the strategic cooperation to strengthen the corporate image of both parties.

According to Fitch Ratings, Malaysia's takaful sector continues to enjoy higher growth than the conventional sector. This growth is driven by a low base, stable domestic consumption and increasing consumer awareness. The rating agency said that regulatory pressure would drive sector consolidation in the short term. As takaful operators realign their strategic focus and gradually retain more risks, Fitch expects some bottom-line volatility in the short term. For the first half of 2016 (1H2016), family takaful grew by 9.8%, while general takaful grew by 5.8%. This compared to 8.2% growth in conventional life and 2.6% in general insurance.

There are 38 real estate investment trusts (REITs) in Singapore’s stock market. The REIT with the worst performance over the last 12 months is Sabana Shariah Compliant REIT (SGX: M1GU), whose units have fallen by 49% in price to S$0.36 currently. Sabana REIT is unique for being the world’s first Shariah-compliant REIT. In the third quarter of 2016 Sabana saw its gross revenue decline by 9.7% to S$23.0 million while its net property income shrank by 24% to S$13.9 million. Although the REIT’s portfolio occupancy rate managed to step up from 88.8% in the second quarter of 2016 to 89.2%, the number is still lower than the 91.7% seen a year ago. Market researcher Knight Frank projected a decline in industrial rents in Singapore of 6% to 8% in the fourth quarter of 2016. Put another way, Sabana REIT’s business environment is in a condition of low demand and oversupply.

#Malaysia’s securities regulator has proposed establishing a fund to invest in the country’s Islamic finance funds and make them more attractive to institutional and foreign investors. The proposed fund is part of an Islamic fund and wealth management blueprint launched on Thursday. It would invest in multi-currency Islamic investment products managed by Malaysian-based asset managers. The fund could address challenges that Islamic funds have faced so far. Few Malaysian-managed funds are offered overseas but this is starting to change. CIMB Islamic Asset Management, for example, this week launched an Ireland-domiciled dollar-denominated sukuk fund. The Employees Provident Fund is launching a RM111.45 billion shariah-compliant retirement fund this month, which could serve as a boon to asset managers in the field.

The Securities Commission Malaysia (SC) has launched a five-year Islamic Fund and Wealth Management Blueprint designed to drive further development and growth of Malaysia's Islamic capital market. The Blueprint aims to establish the country as a leading international centre for Islamic fund and wealth management. It was launched by Datuk Johari Abdul Ghani, Second Finance Minister of Malaysia, on behalf of Prime Minister Dato’ Sri Mohd Najib Tun Razak, at the International Fund Forum 2017. To be implemented on a phased approach, initial work programmes will include the formulation of a framework for SRI funds, the setting up of a global centre for Islamic capital market and the introduction of a digital investment services framework.

The year 2016 records quite remarkable achievements in terms of financial technology (fintech). The Investment Account Platform (IAP), Malaysia’s first multi-bank platform for financial intermediation in the Islamic financial system, was launched on the 17th February 2016. The IAP serves as a central marketplace to finance small and medium enterprises (SMEs) with initial funds of RM 150 million. Eight Islamic Crowdfunding Platform operators from across the globe clicked together to form Islamic Fintech Alliance (IFT Alliance) and launched it on the 1st April 2016. Then, on the 26th September 2016, New York-based Wahed Invest launched Wahed, the world’s first automated Islamic investment platform. Two months later, the Kuala Lumpur-based Faringdon Group announced that it would be launching Asia’s first Shariah compliant Robo Advisor. The online tool called Algebra will provide automated portfolio management advice. Further progress of these initiatives and new innovative entrants will position 2017 for more excitements.

The #Philippine Economic Zone Authority (PEZA) has scheduled investment roadshows in the Middle East to attract investors to explore the Philippine market. According to Peza director general Charito Plaza, this will be in preparation for President Rodrigo Duterte’s plan to visit the Middle East on Feb. 26 to March 3. Plaza mentioned that the Department of Foreign Affairs, Department of Trade and Industry, Philippine Chamber of Commerce and Industry, local government officials, and economic zone developers would join the investment promotion agency in its roadshow in the Middle East. PEZA recently held a seminar on sukuk to help local companies understand doing business with Middle East-based firms. Plaza noted the government aimed to expand the presence of Islamic banks in the country to facilitate investments.

Sabah Credit Corporation (SCC) increased the size of its Sukuk Musharakah programme from RM1.5 billion to RM3.5 billion. According to CEO Datuk Vincent Pung, the move will allow SCC to consolidate outstanding Sukuk issuance and generate an additional RM1 billion for the corporation to plan its future loans growth. Pung also announced i-Cash, a personal loan facility, offering borrowers simplified and online loan processing and the flexibility of drawing the loan. Finance Minister Datuk Seri Musa Aman noted that SCC had anticipated a significant drop in profits of RM16 million initially to RM54 million for the year 2016, but instead reported a beyond expectation pre-audited profit of over RM60 million as of December 2016. He said the corporation has also donated over RM23 million through more than 150 Corporate Social Responsibility projects such as rural hostels, orphanages, half-way homes and centres for single mothers.

Islami Bank Bangladesh has undergone abrupt, major changes in its three top positions - chairman, vice chairman and managing director. Arastoo Khan, the former chairman of Commerce Bank has now become chairman of Islami Bank, replacing incumbent Mustafa Anowar. As a representative of Ibn Sina run by Bangladesh Jamaat-e-Islami leaders, Mustafa Anowar was serving as the chairman of the bank. He also resigned from the post of director as well as from the post in the bank’s foundation. The board of directors also replaced the bank’s managing director (MD) Mohammad Abdul Mannan by Union Bank’s MD Abdul Hamid Mia. Islami Bank Bangladesh has 307 branches including 57 AD branches and three offshore banking units as well as 13,229 staff members, as of December 2015.

#Malaysia Building Society Bhd (MBSB) has received Bank Negara’s approval for talks on a proposed merger with Asian Finance Bank (AFB). MBSB will soon start negotiations with the existing Middle Eastern shareholders of AFB, namely Qatar Islamic Bank (66.67%), RUSB Investment Bank (16.67%), Tadhamon International Islamic Bank (10%) and Financial Assets Bahrain (6.67%), for the merger. The negotiations are to be completed within the next six months. For the nine months ended Sept 30, 2016, AFB reported a net profit of RM4.54 million, an 18.8% drop compared with RM5.58 million in the same period last year. MBSB has a goal to become an Islamic financial institution by 2020 through merger with an Islamic lender. It centres his business efforts on six areas, namely, business focus, right pricing, asset quality, cost cutting, retail collection and information technology initiatives.

The #Singapore Kilobar Gold Contract of Singapore Exchange (SGX) has become the world's first Shariah-compliant gold futures contract. SGX said this endorsement by Islamic scholars on its physically settled futures contract unlocks a new investment and risk management option. The Singapore Kilobar Gold Contract seeks to serve as a transparent and centralised Asian price-discovery platform for the gold market. William Chin, head of metals and bulk commodities at SGX, said the move strengthens Singapore's position as an international centre for Islamic finance. Albert Cheng, CEO of the Singapore Bullion Market Association, said the Shariah-compliant SGX contract will be attractive to new customers in the region, particularly Indonesia and Malaysia.

Malayan Banking (Maybank) has established a sukuk programme of up to RM10 billion in nominal value under the syariah principle of Murabahah. According to Maybank's announcement, the sukuk programme will provide the bank the flexibility to raise funds for its Islamic financial instruments and its business activities. The sukuk programme has been assigned a long-term rating of 'AAA' for issuances of senior sukuk Murabahah and 'AA1' for issuances of subordinated sukuk Murabahah by RAM Rating Services. Maybank IB is the principal adviser, lead arranger and manager, and book runner for the programme.