IslamicFinance.de

Vnesheconombank, Sberbank and Tatfondbank are going to take part in the 23rdWorld Islamic Banking Conference in Bahrain from 5 to 7 of December 2016. The three banks are working on launching Islamic finance products to get access to the investors from the Gulf countries and Southeast Asia. According to Linar Yakupov, head of the Association of Regional Investment Agencies of the Russian Federation, there is growing interest from other 20 Russian banks. However, the current legislation system of Russia complicates the progress. It forbids banks from engaging in commercial activities, so they can operate only a limited range of assets.

The Central Bank of #Jordan (CBJ) announced it will release the first sovereign issue of Islamic sukuk to fund the government's special purpose vehicle projects. The CBJ said the value of the new issue is JD34 million for a five-year term, to be issued on October 17, 2016 and due on October 17, 2021. The CBJ expected these sukuks' revenues to stand at 3%, with paying revenues, after adding a percentage of the sukuk value, via 10 equal payments on April 17 and October 17 of each year. The issuance is released in cooperation between the government, Japan International Cooperation Agency and the Islamic Corporation for the Development of the Private Sector. The CBJ is the issuance manager, while the Jordan Dubai Islamic Bank is the secretary of the issuance.

Amid challenging economic conditions, the Islamic banking sector in Oman achieved significant growth since its start in 2012. The total assets of Islamic banks and windows combined, amounted to RO 2.7 billion as at the end of July 2016 which constituted about 8.5% of the total banking system assets. According to Khalid Howladar, Global Head of Islamic Finance at Moody’s, the growth has been a result of the Omani government’s strategy that has allowed conventional banks to offer Islamic services. Howladar addted that the growth is driven by strong retail demand and proactive government legislation. Across the GCC the Islamic banking sectors have been experiencing growth in their respective market shares with the lone exception of Kuwait.

According to Moody's, the Islamic banking sector continues to outpace growth of conventional banking in key markets, often supported by proactive regulations and strong retail customer demand. Analysts say the broader slowdown in growth, reflects more challenging economic conditions across a number of core Islamic markets, particularly in the GCC countries due to lower oil prices. Despite the current challenges the sector still has potential for further growth, especially in countries such as Oman, Turkey and Indonesia where the penetration of Islamic financing assets remain relatively low. According to Khalid Howladar, Global Head of Islamic Finance at Moody’s, Oman has been highly successful in achieving a high level of Islamic banking penetration. Oman's example shows the effectiveness of government support and regulation in acting as a catalyst for growth.

With only roughly 20 million Muslims in #China, it is not surprising that Islamic finance has not taken off in China. However, some Chinese companies have expressed interest in tapping into offshore pools of Islamic funds. For example, HNA Group, the owner of Hainan airlines, is considering Islamic financing options for its proposed US$ 150 million acquisition of ships as well as a large offering of offshore Sukuk. Another example is that of Country Garden, which issued a Malaysian Ringgit 1.5 billion sukuk through its Malaysian subsidiary in December 2015. Chinese interest in Islamic finance can be motivated by the diversification of funding sources as much as financial diplomacy purposes. China’s growing geo-political clout via the Asian Infrastructure Investment Bank (AIIB) and the 'One Belt, One Road' initiative affords new incentives to facilitate the use of Islamic finance.

The Central Bank of Suriname has granted the Trust Bank a licence to commence Islamic banking. Trust Bank plans to be in operation by the first quarter of 2017. A year ago, Trust Bank signed an advisory services agreement with the Islamic Corporation for the Development of the Private Sector (ICD), to support its conversion into Islamic compliant operations. CEO of Trust Bank, Maureen Badjoeri said that Trust Bank wants to facilitate SMEs in more ways than just financially. With this approach, SMEs will be able to start-up or expand production of goods and services with a spin-off in job creation, trade, export and adding to GDP growth. With the Trust Bank closer to reality, Suriname may emerge as a hub for Islamic banking and finance in the region.

According to Moody’s Investors Service, growth prospects for the Islamic banking are still strong despite subdued sukuk issuance predicted for 2016. Growth in the Islamic banking sector continues to broadly outpace that of conventional banks in most systems in which Islamic banks have been established. The current size of the Islamic finance market has been estimated to range from $1.66 trillion to $2.1 trillion with expectations of market size to be $3.4 trillion by end of 2018. According to the Moody's report, Islamic banking sector growth is driven by strong retail demand and proactive government legislation for the industry. There is potential for further growth, especially in countries in which the penetration of Islamic banking assets remains relatively low, at between 5% and 10% of Islamic financing assets.

Senegal raised FCFA200bn (around $341m) from a sukuk that raised FCFA50bn more than originally planned. Sukuk Etat du Senegal offers 6% a year profit margin, paid half yearly with a two-year grace period. The asset is backed by shares in the Léopold Sedar Senghor international airport. Senegal was the first country in the West African Economic and Monetary Union’s (WAEMU) to issue sukuk, with a debt deal worth FCFA100bn back in June 2014. Ivory Coast aims to raise FCFA150bn as part of a two tranche FCFA300bn sukuk program set up last year. The transaction is expected to deliver a yield of 6.5% and have a tenor of seven years. Meantime, Togo also aims to raise FCFA150bn through a 10-year sukuk offering a 6.5% yield.

#Senegal has upsized its second sale of sovereign sukuk, with #Ivory Coast and #Togo expected to close their own deals in coming days. Senegal issued a debut sukuk in 2014 and returned to the market in July with a 10-year deal paying a 6% profit rate backed by assets from Dakar's international airport. Senegal's sukuk raised a total of 200 billion CFA francs ($341.5 million) from an initial plan for 150 billion CFA francs. Ivory Coast is completing a sale of 150 billion CFA franc worth of 7-year sukuk, while Togo aims to raise 150 billion CFA francs from its debut sukuk, which has a 10-year maturity and 6.5% yield. Niger has also signed up for a sukuk programme to raise 150 billion CFA francs in two phases, although a timing has yet to be determined.

As some areas of banking face competition from peer-to-peer lenders, #Malaysia’s Islamic Financial Services Act 2013 included provisions that can build some of the same types of disruptive innovation into the Islamic banking marketplace. One of the most important was the launch of the Investment Account Platform (IAP) in February 2016 which is a crowdfunding platform owned by Malaysian Islamic banks. The IAP serves as a way to measure customer interest in crowdfunding as an alternative to traditional bank deposits. The investment account growth in Malaysia demonstrates an opportunity for IAP and other innovative FinTech platforms. Islamic banks should realize that they have within their guiding principles a call to embrace risk sharing rather than risk shifting.

Moody's Investors Service has today assigned a provisional (P)B3 rating to the proposed US dollar Trust Certificates to be issued by The Third Pakistan International Sukuk Company. The (P)B3 rating reflects Moody's view that the sukuk certificate holders will effectively be exposed to the sovereign credit risk incorporated in the government's issuer rating. Payment obligations represented by the securities are ranked pari passu with other senior, unsecured debt issuances of the Government of Pakistan. The rating for the Government of Pakistan captures moderate economic strength, structurally large fiscal imbalances, a high government debt burden and high susceptibility to political event risks.

Fitch Ratings has assigned Bahrain's proposed US dollar-denominated sovereign global sukuk trust certificates, to be issued by CBB International Sukuk Company 5 (CBB5), an expected 'BB+(EXP)' rating. Fitch has also assigned Bahrain's proposed US dollar-denominated bonds an expected 'BB+(EXP)' rating. The expected ratings are in line with Bahrain's Long-Term Foreign Currency Issuer Default Rating (IDR), which was downgraded to 'BB+' with a Stable Outlook in June 2016. Certain aspects of the sukuk transaction will be governed by English law while others will be governed by laws of Bahrain. Fitch's rating on the certificates reflects the agency's belief that the Bahraini government would stand behind its obligations.

RAM Ratings has reaffirmed the AA2/Stable ratings of Lingkaran Trans Kota’s (Litrak) Sukuk Musharakah IMTN I and II Programmes (2008/2023) with a combined value of up to RM1.45bil. The ratings reflect Lebuhraya Damansara-Puchong’s (LDP) robust traffic profile, underscored by its strategic alignment through major townships, which supports its strong debt-servicing capability. According to RAM Ratings, Litrak will preserve its strong cashflow-generating ability, with an average projected annual pre-financing cashflow of about RM215mil throughout the Sukuk’s tenure. This translates into solid debt coverage, enabling the company to maintain a strong finance service coverage ratio of at least two times over the same period.

The central benefit of sukuk is that they give issuers access to a far broader range of investors than a conventional bond can. Their reliance on real, tangible assets and their principle of sharing risk makes them valuable for any smart risk management investment portfolio. While there exists thriving markets for them in the Middle East and southeast Asian Muslim countries, an absence of Western governments is marked. Aside from a few symbolic issues by governments in the UK, South Africa, Hong Kong and Luxembourg, domestic markets have been slow to develop.

Mirroring the conventional banking sector, Islamic finance institutions are turning to IT directors to lead the change towards business innovation. Zubair Ahmed, head of IT and business innovation at Emirates Islamic Bank, says the IT department is no longer viewed as simply an enabler, but as a business innovator in its own right. Ahmed says many of the bank’s innovations are born in the IT department. The bank’s integrated tech innovation approach is yielding results. Emirates Islamic was recognised among Global Finance’s 2016 'The Innovators' of Islamic Finance for EI trade, a Shariah-compliant online trade finance and supply chain platform. In May 2016, it also became the first Islamic bank in the UAE to enable its customers to access basic account services via Twitter.

In #Pakistan the Economic Coordination Committee (ECC) of the Cabinet finalised plans for immediate launch of $500 million to $1 billion sukuk in the US capital market. Presided over by Finance Minister Ishaq Dar, the ECC decided to start process for the launch of sukuk in Washington on Tuesday and wind up the transaction by Oct 5, 2016. The government has already hired a consortium of five banks – Citibank, Standard Chartered, Deutsche Bank, Dubai Islamic and Noor Islamic – as financial advisers to complete the sukuk transaction. Being Islamic mode, the bond is being raised against Lahore-Islamabad Motorway as collateral that should keep pricing slightly lower than conventional bonds. The government would decide about the exact size of the bond on the basis of investor response and pricing but would remain within $500m-$1bn band.

The relationship between capital structure and performance in Gulf Countries Banks, came under the spotlight in a comparative study between Islamic Banks and Conventional Banks. The study was conducted by Associate Professor in Finance and Banking at Kingdom University Dr. Abdelrhman Meero. According to Professor Meero, it is imperative to conduct continuous studies and research in this field, especially as new trends and regulations are periodically introduced by governing authorities in this sector. Results of the study show that there is a similarity of capital structure of Islamic banks and Conventional banks in Gulf Countries. The similarity of capital structure could be the result of the regulation system of the Gulf Countries, which controls the two types of banks by the same capital adequacy regulations.

RAM Ratings sees Malaysia’s leadership in Islamic finance as a catalyst for environmental, social and governance (ESG)-driven investment. RAM Ratings CEO Foo Su Yin said for ESG growth the government needs to follow a similar path to that which has led to Malaysia’s leadership position in Islamic finance. PRI managing director Fiona Reynolds said that fiduciary duty remains the biggest barrier to ESG integration. She added that investors and policymakers need to work together to ensure sustainability issues continue to gain traction. There are compelling national-interest reasons for policy makers to promote the incorporation of ESG factors into investment practices in China, Hong Kong, India, Malaysia, Singapore and South Korea.

Moroccan state-owned bank Credit Agricole (CAM) received the approval of the Ministry of Finance to open an Islamic subsidiary with The Islamic Development Bank (IDB). Credit Agricole will reportedly own 50% of the Islamic banking window as a joint venture with the IDB with an initial capital of 200 million dirhams. The two institutions have expressed plans to raise it to 400 million dirhams eventually. The central bank said earlier this year it had received seven requests to open Islamic banks and three to open windows selling Islamic finance products.

Malaysian corporate sukuk sales are rebounding from a four-year low. RHB Investment Bank sees issuance rising 7% to RM60.2bil in 2016, encouraged by Bank Negara’s monetary easing in July. AmInvestment Bank forecasts as much as RM70bil. Sukuk sales have picked up after Najib kicked off US$16bil of road and subway projects this year in partnership with the private sector. This month the Public Sector Home Financing Board sold RM3.4bil of Government-guaranteed Islamic notes, while Lebuhraya Duke Fasa 3 Sdn. offered RM3.64bil of syariah debt to finance a highway in Kuala Lumpur. Fundraising is needed for construction of 1,800km of roads being built in Sabah and Sarawak. Other potential issuers include Prasarana Malaysia, which is financing a RM10bil extension of Kuala Lumpur’s light-rail network.