IslamicFinance.de

According to the findings of Emirates Islamic’s second Islamic Banking Index, there has been an increasing public acceptance and demand for Islamic banking in the UAE. Chief executive of Emirates Islamic, Jamal Bin Ghalaita, said 51% of banking consumers had at least one Islamic product, demonstrating that the efforts by Islamic banks to improve their customer outreach were paying off. As far as perception is concerned, Islamic banks’ trustworthiness rose 42% among Muslim consumers compared to 37% in 2015. Among the non-Muslim population, there was a sizable increase in the number of non-Muslim consumers willing to consider subscribing to an Islamic banking product. The survey also highlights the key challenges for Islamic banks. For a second consecutive year, Islamic banks lag behind conventional banks in technology, innovation and customer service.

Fitch Ratings has affirmed GFH Financial Group’s (GFH) Short-term Issuer Default Rating (IDR) at "B" and revised its outlook upward from stable to Positive with a Long-term IDR at "B-". The positive outlook reflects the steps GFH’s management have taken to strengthen its balance sheet by paying down debt, reshaping the business model with focus on income-generating investments, and consequent improvement of profitability. GFH said it believes that this upward revision of the outlook is the result of its new strategy and in developing new recurring steams of income through income yielding investments.

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.

Retail-focused Islamic banks in GCC countries have strong liquidity coverage ratios (LCRs) due to their large base of core retail customer deposits and low reliance on market-sensitive wholesale funding. According to Moody’s, retail deposits in 2015 comprised around 67% of Islamic banks’ customer deposits for the three GCC countries, compared to 40 for conventional banks. Islamic banks in GCC countries have become systemically important and continue to increase their market penetration, outpacing conventional banks. Sustained lower oil prices continue to reduce the flow of deposits and could lead to a gradual weakening of the LCR metrics for both Islamic and conventional banks.

Across the world, organisations can no longer define success or efficiency solely on the merit of financial results or revenue earned. Reporting is still very much driven by numbers, and performance is measured in terms of hard outcomes, rather than the more qualitative aspects. An integrated approach asks the management of an organisation to consider a wide variety of capitals — beyond financial and manufactured capital. The concept is fairly new to the GCC, sustainability has become a major focus for businesses and organisations of all kinds. Today, sustainability cannot be separated from other business practices and needs to be fully integrated into each function within the organisation.

The overall profitability of Takaful industry is under strain largely because the industry has yet to break into some of the most profitable lines of business that are dominated by conventional payers, according to rating agency Standard & Poor’s.
“In our view, the takaful sector is underperforming, especially in the UAE, because it lacks the advantages of conventional insurers, which are often larger and benefit from better economies of scale. They have more-established distribution mechanisms and so their revenue generation is less dependent on intermediaries,” said Emir Mujkic, Associate Director, Finance Services of Standard & Poor’s.
The crowded UAE and other Gulf Cooperation Council insurance markets often suffer from overcapacity, which can often trigger aggressive price wars. “In our opinion, Islamic insurance companies require considerable capital investment to become established, yet relatively new companies often come under pressure to generate profits and deliver healthy returns to their investors,” said Mujkic.

According to Standard & Poor’s, profitability of the GCC takaful industry is expected to remain relatively weak during the current year and the year ahead despite an impressive 20% year-on-year growth gross premiums in 2014 and 2015. Most takaful players are still relatively small compared with their conventional peers. Their shorter track records and less-diverse books of business put them at a disadvantage now that the falling oil price and stricter regulation are hitting GCC insurance markets. Including Saudi Arabia, the GCC’s Islamic insurance market generated an estimated pretax surplus of more than $260 million in 2015. But the takaful sector in the remaining GCC states generated a combined net loss of about $5 million in 2015 and net losses surged to about $11 million during the first six months in 2016.

Developer of Istanbul financial hub Burak Kutlug says the coup and the conflicts are strictly short-term concerns in Turkey. The property market remains a magnet for investors from the Middle East or other Islamic countries. In recent years, Turkey has been going all out to pull in such investors, particularly through legislations such as the "reciprocity law", whereby anyone who commits to a certain level of funding gets to have citizenship rights. According to a survey by CBRE of the living factor in major cities, Istanbul has seen its real estate recording 25% annual growth. Kutlug believes there’s still headroom for Istanbul prices to grow. The city’s all-round development with the new airport expansion and Eurasia tunnel will more than ensure that.

Emaar Properties and Kuwait’s Burgan Bank raised $1.25 billion (Dh4.59 billion) from bond sales. Emaar sold $750 million of 10-year Islamic securities, pricing them at 225 basis points over the benchmark midswap rate. Burgan Bank raised $500 million from a sale of five-year dollar securities that will carry a spread of 215 basis points over midswaps. Corporate bond sales are picking up amid a rush of sovereign issuance in the oil-exporting region. Saudi Arabia is expected to raise at least $10 billion in October from its first offering of international securities.

Saudi Arabian construction firm Abdullah Abdul Mohsin Al Khodari and Sons has renewed an existing 132 million riyal (Dh129.2 million, $35.2 million) Islamic credit facility with Samba Financial Group. The facility will provide bonding commitments as well as capital and working capital requirements for projects and general business. Credit limits for projects covered by the facility will range from 36 to 60 months. Khodari has also won a 69 million riyal contract from the kingdom’s Ministry of Environment, Water & Agriculture for the maintenance of water networks. The financial impact of the project is expected to start in the third quarter.

Having cleared all of its historical debts, Nakheel confirmed talks are on with banks to tap 'cheap' funds for its ongoing and future projects. But there is no intention to seek such funds through another sukuk or via a share offer. Nakheel is now completely off debts, having paid off Dh4.4 billion to trade creditors via a sukuk. It had in 2014 paid off Dh7.9 billion to its banking lenders, four years before they were due. Nakheel Chairman Ali Rashid Lootah said he is hopeful of netting a new funding agreement before the year end. The funds can come in handy with Nakheel’s existing roster of projects. This includes a mega-mall, with an estimated development cost of Dh4 billion plus.

Malaysia’s second-largest pension fund plans to buy more bonds to hedge against another interest-rate cut as it moves further toward becoming a full-fledged Islamic entity. CEO of Kumpulan Wang Persaraan, Wan Kamaruzaman Wan Ahmad said the fund is considering lowering its 5% minimum return target because of the uncertainty in global markets. He also added that this low interest-rate environment, low corporate returns, lower dividend yields will prevail for a much longer period. KWAP bought 30-year Malaysian government bonds at a yield of 4.613% on June 29, days after the UK voted to leave the European Union. Wan Kamaruzaman said the fund will likely keep its 2% allocation to UK assets, despite the results of the referendum, because it adds diversification to the portfolio.

On the demand side, the institutional demand for high quality liquid assets are expected to keep sukuk demand high. As we get closer to the deadline of Basel III implementation, the lack of liquidity management instruments in Islamic finance is pushing this issue to the forefront.
Among the global economic developments, one positive driver for sukuk issuance could be the European Central Bank’s quantitative easing that might prompt some European investors to take positions on higher-yielding but riskier emerging-markets assets such as sukuk. Negative interest rates in Europe and Japan also are likely to attract investor of Gulf sukuk issues.
In 2015, the market saw $11.3 bn (17% to the total) in sukuk issuance for liquidity management purposes. The International Islamic Liquidity Management Corp. alone issued $6.4 bn and is actively working on providing solutions to the market. Other stakeholders such as sovereign and central banks are now conscious of the role they have to play. In 2015, the market also saw another $4.9 bn issued in form of capital-boosting sukuk by financial institutions in the GCC and Malaysia.

Emirates Islamic Bank has made two donations of Dh2 million and Dh50,000 to inmates of Dubai Police’s Punitive and Correctional Establishments. The Dh2 million was allocated from the Zakat accounts to help inmates who are incarcerated for financial issues. The other donation, that of Dh50,000, was allocated from the charity accounts to pay for plane tickets for needy inmates.

Roughly one-third of those suffering from extreme poverty worldwide live in member states of the Organisation of Islamic Cooperation (OIC). In 21 of those 57 countries, fewer than half of the population has access to adequate sanitation. Instability places enormous strain on national budgets. The capital accumulated in some of the OIC countries could play an important role in helping them. If Islamic finance is to play its full part, governments will need to undertake important reforms. There is a need for stronger legal institutions that protect property rights and ensure that contracts are enforced. The industry will need to be standardised and regulated.

The Islamic world is sizeable market by any global standard: 1.7 billion consumers, with a birth rate growing two times the pace of the world average. Consumer spending in 2014 tallied $1.8 trillion (Dh6.6 trillion) and is slated to surge to $2.6 trillion by 2020 according to a study by Thomson Reuters. The market development is being led primarily by a handful of countries with Malaysia, the UAE and Singapore standing out. The fastest growing sectors are halal food, halal travel and leisure, the pharmaceutical and cosmetics arena and Islamic finance. But the reality is too many countries are being left behind. Poverty rates remain too high, with a quarter of the population for example in Egypt still living on less than $2 a day.

Abu Dhabi Financial Group (ADFG) and Bahrain’s GFH Financial Group are jointly setting up an Islamic bank in Abu Dhabi’s new financial free zone with initial capital of $100 mn. ADFG's CEO Jassim Al Seddiqi said the bank will open very soon, it will be run as a commercial bank accepting offshore deposits and dealing in dollars. ADFG has recently raised its stake in GFH to 11.74% from 10% and the two firms are seeking other joint opportunities for the future.

Noor Bank has successfully priced its debut perpetual $500 million Tier 1 capital issuance, the first issuance from UAE in 2016. The final pricing came on the back of global roadshows across Middle East, Asia and Europe with an order book crossing over $1 billion. Citi and Standard Chartered were the joint global coordinators for the issuance, whilst Dubai Islamic Bank, Emirates NBD Capital, First Gulf Bank, Noor Bank and Sharjah Islamic Bank acted as the joint lead managers for the issuance.

Emirates Islamic announced the launch of the Emirates Islamic charity fund, to govern and manage the bank’s strategy for charitable donations and giving. The fund’s activities will be managed by Awatif Al Harmoudi. The fund has been set up with the primary objective of allocation of financial aid to large charities, public and private institutions, as well as individuals in need.

Emirates Islamic Bank has mandated banks including HSBC for the sale of Islamic bonds. The sale of the dollar-denominated, benchmark-sized securities may begin this week and the sale is arranged by Standard Chartered, Emirates NBD, Dubai Islamic Bank, Noor Bank and Bank ABC. Emirates Islamic Bank last sold bonds in July 2012, when it raised $500 mn from securities with maturity of between five and six years.