IslamicFinance.de

The Central Bank of Bahrain (CBB) will publish a consultation on a proposed risk assessment framework for Islamic banks in the first quarter of 2018. Khalid Hamad Abdul-Rahman Hamad, director of banking supervision at CBB, said the bank was planning to issue a very detailed risk management toolkit to improve risk management practices taken by Islamic banks. Under the proposed new rules, banks are required to have proper reserves, be it profit equalisation reserves or investment risk reserves. Whenever banks are investing, they must have a pre-plan regarding how much of bank assets will be funded by unrestricted investment accounts and how much will be invested from funds.

Gulf Finance House (GFH) has struck a $150 million deal to sell part of its educational assets to a global private schools operator called Inspired. Inspired runs private schools in Europe, Africa, Latin America and Australia. Hisham Al-Rayes, CEO of GFH, said Inspired’s network and experience would add significant value to the schools. This way, both students and teachers will take part in exchange programs and benefit from the latest programs to enhance the level of education. Inspired has schools in Italy, the UK, Switzerland, Belgium, South Africa, Kenya, Australia, Colombia and Peru. GFH’s businesses include asset management, wealth management, commercial banking and real estate development.

Sukuk issuers are changing the language in documentation for new issues to reassure investors after Dana Gas refused to redeem $700 million of maturing sukuk. Dana Gas said it would not repay sukuk maturing in October because changes in the interpretation of Islamic finance had made the bonds unlawful in the UAE. Issuers are now amending their documentation to preclude the use of this argument. According to Mohamed Damak, global head of Islamic finance at Standard & Poor's, clauses seeking to reduce sharia compliance risk have become normal in the global industry, but the complexity of sukuk makes it difficult to remove the risk entirely. According to Mohammed Khnifer, senior associate at the Islamic Development Bank, sukuk holders and issuers will now rely more on English law and avoid local laws with dollar-denominated issuance.

Qatar International Islamic Bank (QIIB) plans to issue a U.S. dollar-denominated benchmark sukuk in February. Benchmark deals are generally upwards of $500 million. One of the sources said the transaction could go up to $700 million in size. The sukuk issuance would be QIIB’s first debt sale under a $2 billion sukuk programme the bank established in October. The sukuk programme is arranged by QNB Capital, Citigroup and Standard Chartered.

Dubai's Emirates REIT has given initial price guidance in the low-to-mid 5% for its debut U.S. dollar-denominated sukuk. The issuance of the sukuk is expected to be of benchmark size, which conventionally means the higher side of $500 million. The senior unsecured deal, with an expected BB+ rating by Fitch, will price later in the day.

According to Standard & Poor’s, favourable market conditions supported the growth of corporate and infrastructure sukuk issuance across the GCC in the first nine months of 2017, but the outlook for 2018 is uncertain. Issuance in this segment increased to $6.8 billion (Dh24.97 billion), up from $2.8 billion during the same period of 2016. This growth suggests improvement in overall capital market activity, even though the number of corporate sukuk issuers remains low. Rising infrastructure needs and relatively low interest rates were the two support factors for corporate and infrastructure sukuk. GCC banks traditionally operate with high levels of capital, but analysts expect Basel III to make less of it available for project finance. That could make issuers consider capital market options in the form of conventional project finance debt or sukuk as an alternative to bank finance.

In the GCC there are only a few corporate entities that currently issue sukuk. GCC governments have so far prioritised external capital market funding for plugging fiscal deficits rather than for corporations. Prevailing subdued oil prices continue to lead to fiscal deficits for GCC nations. According to S&P analysts, governments are yet to be fully convinced of the merits of the private finance model for infrastructure. The GCC corporate and infrastructure sukuk market has yet to exceed double-digit growth in issuance or to attract a wider variety of entities. The Dana Gas restructuring announced in May also influenced sukuk activity in the third quarter of 2017. At the moment, it remains unclear what ramifications the Dana case would have for the sukuk market.

Islamic banking is a growing industry, however still much smaller than conventional finance, even in Muslim majority nations. In the UAE, 76% of residents are Muslim, yet Islamic banks only hold 19% of banking assets. The question is: why would Muslims choose conventional banks when Halal options are available? Research has found that the chief reason was a better rate of return. A recent study shows that 25% of Islamic banking customers preferred conventional banks and products when interest rates were the same. When conventional banks offer 1% better interest rates, the share that would switch to conventional banks rose from 25% to 44%. About 25% of Islamic banking customers came to it because of their employers, while 35% use both Islamic and conventional banks. A group of about 40% of Islamic banking customers are truly loyal to Islamic banking, most likely for religious reasons.

Dana Gas announced it will appeal against a British court’s ruling on its $700 million sukuk, after a UAE court lifted an injunction preventing it from participating in the British proceedings. Dana previously said the sukuk was invalid under UAE law and refused to repay holders of the sukuk which matured at the end of October. The energy producer sought a declaration on the sukuk’s lawfulness at courts in the UAE and Britain. Last month, a British court ruled in favour of Dana creditors, deciding the purchase undertaking was valid and enforceable. Dana has said it aimed to appeal against the ruling because it could not take part in proceedings. A hearing in Sharjah on the validity of the sukuk under UAE law is scheduled for Dec. 25.

Assets of the Islamic banks operating within the UAE totalled to 535 billion AED by the end of last month. That is around 6% growth since the beginning of this year. And it accounts for 20.2% of the total banking assets in the country. These are valued at around 2.639 trillion AED during the first 10 months of 2017, according to figures of the UAE Central Bank.
This obvious growth in Sharia-compliant financial operations in the UAE mirror the significant development of these kind of banking products which have been enjoying impressive growth across the whole region in the last few years.

According to Central Bank figures, the value of credit provided by the Islamic Banks since the beginning of 2017 until October surged to 361 billion AED, a growth of 7.7% against that of December 2016.
Loans and credit facilities provided by Islamic banks make up 22.8% of total loans provided by the entire banking system in the UAE, valued at 1.584 trillion AED by the end of last month.

Emirates Islamic is targeting balance sheet growth and improved profitability along with digitisation. According to Deputy CEO Wasim Saifi, these objectives are complementary. The speedier technology adoption comes naturally due to the bank's close links with Emirates NBD, a technology leader in consumer banking in the UAE. As a subsidiary of Emirates NBD, it has access to all the innovations the parent company adopts. Emirates Islamic has upgraded its core banking platform and introduced an improved mobile banking app with 25 new services. Emirates Islamic is the first and only Islamic Bank in the UAE to support both Apple Pay and Samsung Pay. As part of the new product roll out, the bank has launched QuickRemit to India and will launch the service to Pakistan and other remittance corridors soon.

Interest in gold has soared since the Shariah standard for gold was introduced almost a year ago. The standard was approved as a collaboration between the Bahrain based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) and The World Gold Council (WGC) in London. Natalie Dempster, managing director at the WGC, says a number of existing gold products have now been certified as Shariah compliant and are being marketed as such. Several new regionally issued products are also under development. Adopting a Shariah standard has implications not just for the Muslim world but the UAE itself. Dubai in particular is rising as a purchase and investment destination. This has led to the emergence of institutions such as Noor Bank, Regal Assets and others that will buy and store bullion on behalf of clients from around the world.

The first phase of the King Abdullah Financial District project is due to be launched next year. The business hub in Riyadh has been under construction since 2006 and will soon get a fresh lease of life under the management of the kingdom’s sovereign wealth fund. The Saudi Public Investment Fund (PIF) will take over the management of the King Abdullah Financial District from the Public Pension Agency. As outlined in the Saudi Vision 2030 plan, the new hub is to be an economic free zone with visa exemptions and a direct connection to the airport. The government is now exploring new incentive options to attract financial institutions to occupy space in the district. The 73-building development has been restructured to reduce office space and increase the number of residential units.

Emirates REIT will hold fixed income investor meetings until Dec. 1 ahead of a debut dollar-denominated five-year sukuk sale. The issuance is expected to range between $350 million and $425 million. The company has mandated Standard Chartered as sole global coordinator, and Dubai Islamic Bank, Emirates NBD Capital, Standard Chartered and Warba Bank as joint lead managers and bookrunners to arrange the meetings ahead of the planned issuance.

Saudi Arabia's Public Investment Fund (PIF) has finalized a deal to take over the management of the King Abdullah Financial District from the Public Pension Agency. As outlined in the Saudi Vision 2030 economic reform plan, the financial district is to be an economic free zone with visa exemptions and a direct connection to the airport. The first phase of the project is due to launch next year with plans to host the G-20 meeting there in 2020. The government is now exploring new options to attract financial institutions to occupy space in the district. The 73-building site has been restructured to reduce office space and increase the number of residential units. PwC and local regulator Capital Market Authority are among the companies due to take space in the area.

Fidor Solutions has opened its newest office in Dubai Silicon Oasis (DSOA), the integrated free zone technology park. DSOA's Deputy CEO, Juma Al Matrooshi and Fidor's Founder Matthias Kröner led the inauguration of Fidor’s regional headquarters in the presence of senior officials. Fidor is committed to contributing to the region’s growth by helping strengthen the fintech community and support the region’s economy through local employment and new talent searches. Commenting on the expansion, Matthias Kröner said Dubai was the natural next step for Fidor, especially because of the region’s growth within ecommerce, payments and its overall digitisation. Juma Al Matrooshi congratulated Fidor on expanding its regional presence in the Middle East and assured that the digital banking provider will significantly benefit from this location.

Oman's Capital Market Authority (CMA) has recently approved a plan by Golden Group to issue sukuk worth OMR200 million. The sukuk will be issued in different tranches and the first issuance will be for OMR50 million by way of a private placement. The first issuance is with a tenor of five years, it matures in 2022, and has a profit rate of 6.5%.

The World Islamic Banking Conference (WIBC) is taking place on December 4th, 5th and 6th, in the kingdom of Bahrain. The theme for WIBC 2017 is Drivers of Economic Growth & Risks: Policymakers & Regulators. WIBC is expected to draw participation from over 1,300 global industry leaders, policy makers, innovators and stakeholders, all focused on navigating through the complexities of the global financial system. CEO of Path Solutions, Mohammed Kateeb, said the Islamic finance industry was going through drastic changes as a consequence of evolving customer behavior, channel proliferation and the digitization of operations. He underlined the importance of recognizing common challenges and opportunities facing the industry at large.

Dana Gas plans to appeal the UK court ruling on $700mn of its outstanding sukuk. According to Dana Gas, the decision by the London court is flawed because the UAE-based company was barred from participating in the proceedings due to an injunction at home. Judge George Leggatt said the English law contracts are enforceable in the case. Dana was challenging a provision called purchase undertaking, which allowed the trustee on behalf of investors to force Dana to buy them out of the agreement at par. Dana shares fell as much as 5.6% on the Abu Dhabi stock market on Sunday. The court ruling puts investors one step closer to resolving a dispute over the sukuk that highlighted one of the Islamic finance industry’s weak spots.

UAE's Noor Bank is to move away from unsecured lending to small and medium-sized enterprises. CEO John Iossifidis said the bank was not turning its back on that sector, but it’s certainly not going to be the unfettered lending that was happening two years ago in the banking sector. Other local banks have already taken steps to cut their exposure to the SME sector. Noor Bank also intends to diversify its corporate loan book. In its retail business, the bank aims to shift its focus more towards affluent consumer clients by raising the minimum salary threshold for customers. Iossifidis said the bank had a 7% market share in the UAE mortgage market, giving it an advantage in capturing greater market share in the affluent market.