IslamicFinance.de

Qatar Islamic Bank (QIB) expects to issue a Tier 1 capital-boosting bond between this quarter and the third quarter, the bank’s chief financial officer Gourang Hemani said. The Doha-listed lender in February received shareholder approval to issue up to 5 billion Qatari riyals (Dh5.04bn) to increase its Tier 1 or core capital in line with Basel III banking standards. The bond will have a perpetual tenor. It is going to be a private placement, most likely within Qatar. QIB’s net profit rose 19 per cent to 400 million riyals in the first quarter of this year, compared to a year earlier. Total income grew 13 per cent in the first quarter to 950m riyals, compared with the year-earlier period.

Banks still have an appetite for project finance but are being more selective in lending as the project pipeline in the Arabian Gulf region stabilises. Project awards in the Gulf region this year are forecast to rise slightly to US$172.7 billion from $171.7bn last year. In the first quarter of this year $46.6bn worth of projects were awarded versus $53.7bn in the first quarter of last year – a figure skewed by the $15bn worth of contracts for Kuwait’s clean fuels refinery project last year. One reason banks are eager to finance good projects is the vast liquidity they amassed during the years of strong oil prices. Gulf governments have also pledged to continue spending on infrastructure, a sign that encourages banks to continue to lend.

Amlak Finance plans to re-list its shares on the Dubai Financial Market this month after an absence of more than six years. The Sharia-compliant home finance company, in which Dubai’s Emaar Properties has a 45 per cent stake, had won shareholder approval last month to resume trading. Amlak completed a restructuring of US$2.7 billion worth of debt last August, paving the way for the firm’s shares, suspended since November 2008, to resume trading. Amlak yesterday reported a 62.5 per cent drop in first-quarter net profit to Dh6 million from Dh16m a year earlier. Revenue fell 15 per cent in the first quarter to Dh105m because of its decreasing real estate portfolio, the firm said.

Saudi Arabia will remain a favoured destination for private equity investment in the coming years in spite of volatile oil prices and instability in neighbouring Yemen, investment professionals said. Lower oil prices in the past year are unlikely to affect the growth in consumer-facing sectors such as health care and retail, making companies operating in such sectors attractive targets, according to Huda Al Lawati, a partner with Abraaj Capital in Dubai. But sustained lower oil prices may have an impact on deals in infrastructure and construction sectors, according to Sameer Nawaz, the managing director and co-head of investment banking at Saudi Fransi Capital in Riyadh.

Dubai Islamic Bank said its first quarter profit rose 34 per cent as the biggest Islamic bank in the UAE by assets shrugged off a sharp drop in the price of oil and continued to gain market share in Sharia-compliant financial services. Net income rose to Dh850 million in the first three months of 2015 from Dh637m in the same period last year. Revenue increased 20 per cent to Dh1.56 billion from Dh1.3bn in the same time frame. Chief executive Adnan Chilwan said that he expects 15 to 20 per cent growth in loans this year. He said this year that loan growth would continue to come from corporations and individuals.

Despite the green bond issuance market increasing more than threefold to US$36bn last year on 2013, according to the Climate Bond Initiative (CBI), the UAE is still uncharted territory. However, the race is on to release the world’s first green sukuk, and this country is looking like a strong contender for the first issuer of a green sukuk. Instead of hitting the conventional bond buyers, a green sukuk can attract conventional bond investors to those diversifying their portfolios. All it would take is one issuer to come out in the region to show the demand.

The UAE is expected to issue the world’s first Sharia-compliant bond aimed at financing green energy projects this year, possibly as early as next month. Green bond issuance reached US$36.6 billion globally last year, more than triple the previous year’s total. $100bn of green bond issuance is expected this year. The London-based Climate Bonds Initiative (CBI) has helped to create international standards for this type of ethically responsible financial security, from which capital raised is used for projects such as solar and wind schemes as well as developing energy efficiency initiatives such as LED lighting.

Morocco is poised to have its first full-fledged Islamic bank as early as September. Dar Assafaa, an affiliate of the country’s largest lender AttijariWafa Bank, will probably become the nation’s first wholly Sharia-compliant financial institution when the central bank approves its switch. The country’s Islamic finance bill, which came into force on January 30, also allows for the formation of a centralised Sharia board to oversee Islamic banks. The Moroccan Association of Participative Financiers estimates total investment in Sharia-compliant products in the country will reach $7 billion by 2018.

Global sales of Sharia-compliant debt have slumped more than 70 per cent this year amid a plunge in crude prices. The drought underscores the industry’s dependence on sales from the GCC. Activity will pick up over the coming weeks, with Emirates Airline planning to sell US$1 billion of Sharia-compliant notes this quarter. Petroliam Nasional, the Malaysian state oil company known as Petronas, is seeking to raise as much as $7bn in the largest sale of dollar-denominated sukuk. The Islamic Development Bank will meet investors from this week before a possible issue. Meanwhile, Garuda Indonesia may issue $500 million of US currency Sharia-compliant debt in April.

In November last year, the International Finance Facility for Immunisation (IFFIm) issued a US$500 million sukuk using the funds to buy vaccines. As an added bonus, the sukuk pays, in quarterly coupons, a Sharia-compliant profit rate equivalent to the US 3-month London Interbank Offered Rate plus 0.5 per cent. IFFIm’s sukuk indicates a growing similarity between two heretofore disparate areas of asset management: Islamic finance, and the largely western socially responsible investment (SRI) tradition. Islamic finance-SRI crossover products will appear if investor demand requires it, although the level of cross over suggests there may not be a need for separate Shariah-compliant SRI products.

Mishal Kanoo, deputy chairman of the Kanoo Group, believes that the big merchant families of the Gulf are the backbone of the regional economies, and that of the UAE. Most of them came into being around the time Gulf states won independence in the 1970s, so now they are in the third generation of ownership. This creates its own tensions. Part of the problem lies in the blurred distinction between ownership and management, he says. The other question is how to protect minority family members who do not wish to be involved in the management, but who have an economic stake in the running of the business.

EIIB-Rasmala, a Dubai-based investment bank and asset manager, is moving to buy the remaining 49 per cent of an associate company based in Egypt. The takeover of Rasmala Egypt Asset Management (Ream) follows new strategic initiatives for next year. EIIB-Rasmala is now opening discussions with potential joint venture partners to expand its investment activities in both Egypt and other parts of Africa, its chief executive Zak Hydari said. In November, EIIB-Rasmala announced it was finalising the launch of two leasing fund strategies and planning to expand its UAE property business. The Dubai investment bank also said it expected to raise about US$1 billion for its growing leasing and alternatives business and approximately $250m to invest in a broad mix of property transactions in the United Kingdom.

EIIB-Rasmala, the Dubai-based investment bank and asset manager, will expand its leasing and property fund products amid increased investor demand in the Arabian Gulf region. The group yesterday said that it was finalising the launch of two leasing fund strategies and planning to expand its UAE property business. This came amid a surge in demand driven by progressive regulatory activity of regional markets, particularly in Saudi Arabia and the Emirates, as well as greater investor confidence in the underlying market fundamentals of the region. EIIB-Rasmala said that it expected to raise about US$1 billion for its growing leasing and alternatives business and approximately $250 million to invest in a broad mix of property transactions in the United Kingdom.

Improving asset quality and declining credit losses will add up to healthy third-quarter earnings for the region’s banks, says Standard & Poor’s. With the release of quarterly results coming soon, S&P predicted in a report yesterday that the banks will sustain their strong performance – and should continue to do so into 2016. The ratings agency said in a report yesterday that even though interest rates are low, the reductions in banks’ non-performing assets should offset the contraction in net interest margins. Besides, the many infrastructure projects planned in the Gulf should translate into sustained streams of corporate lending.

While the UAE Government has launched a number of initiatives this year to support small and medium enterprises (SMEs), there are still industry executives who say that much more needs to be done – especially when it comes to the nascent Islamic economy. The UAE is especially keen to give Emiratis a chance of helping the economy by starting their own businesses, and a number of big companies are promoting the initiatives by inviting SMEs to be their suppliers. Banks have played their part in recent years as they recovered from the financial crisis of 2008. While criticism against banks for not doing enough to fund SME businesses was justified before the financial crisis, when banks were more focused on financing real estate and retail customers, that is no longer the case.

Al Rajhi Bank posted a fourth successive quarterly profit decline as its second-quarter earnings fell 8.2 per cent year-on-year, with Saudi Arabia’s largest listed lender hit again by higher provisioning. The bank said it made 1.95 billion Saudi riyals in the three months ending June 30, compared with 2.12bn riyals in the same period a year earlier, citing an increase in total operating expenses for the drop without elaborating. Despite the decline, Al Rajhi’s net profit figure was in line with analyst forecasts, with a poll conducted by Reuters expecting an average profit of 1.97bn riyals for the quarter. Al Rajhi’s quarterly profit decline stands against the positive earnings performance reported by most other Saudi lenders.

The UAE's Debt Settlement Fund was set up to rescue Emiratis struggling to meet payments on loans and credit cards. It was launched with an initial budget of Dh10 billion. Heavily indebted Emiratis who receive help by the fund are not allowed to borrow from any banks and their name is centralised in all banks. All banks are required to cooperate, and uncooperative institutions will face penalties. Under the auspices of the agreement, the bank writes off half the outstanding amount of the debt, which must be in dispute. However, in turn, the bank gets closure on a debt that is stuck in litigation. However, only Emiratis who have been taken to court by a bank on account of default as of the date of the launch of the initiative in 2011, qualify for the programme.

Abu Dhabi Islamic Bank (ADIB) is the latest lender after JPMorgan, Citi and Standard Chartered to expand business in Iraq as the oil-rich country boosts crude production and rebuilds its infrastructure. ADIB plans to open a branch in Basra before the end of the year after it opened a branch in Erbil in October. The lender’s expansion in Iraq is part of a larger strategy to grow its international network, which includes branches in the United Kingdom, Egypt, Qatar, Saudi Arabia and Sudan. Iraq’s economy is expected to grow by 6.3 per cent this year, up from 3.7 per cent growth last year. The country raised its crude oil production by 530,000 barrels per day (bpd) last month to 3.6 million bpd. However, Iraq remains a fragile state and security risks can never be understated.

Dubai's Tecom Investments has sent a delegation from Dubai’s Knowledge Village and Dubai International Academic City to meet representatives from Islamic finance academic institutions in Malaysia in an effort to bring some them to the emirate. The delegation examined different Islamic economics courses related to Sharia-compliant funds, sukuk, murabaha and the regulatory frameworks related to Islamic finance. Dubai aims to bring two renowned Islamic finance universities to the city – the International Islamic University Malaysia and The Global University of Islamic Finance. It is also keen to bring in governmental professional development centres such as the Islamic Banking and Finance Institute Malaysia. The delegation also visited the Labuan International Business and Finance Centre, which has a research focus on Islamic wealth management.

The need for large investment in infrastructure – roads, railways, ports and housing – offers opportunities for Islamic finance, notably in Asia and emerging markets in general. However, Islamic finance needs an appropriate supervisory framework, and legislation is often the first step towards opening a new market. The market’s growth is driven by three factors: First, it is becoming part of normal retail and corporate banking in core Islamic countries, such as Saudi Arabia. Second, its growth appeals to other markets, particularly in the Muslim world. The third driver is innovation. Looking forward, the Islamic Economy is developing quickly. As consumption drives increased trade and economic links and the Islamic economy grows, new opportunities will require financing.