The international sukuk market received a major boost when Saudi Finance Minister Ibrahim Al Assaf confirmed that the kingdom’s public debt issuance programme will not be limited to conventional bonds and that sukuk will play an important role. The global sukuk market had a flat year in 2015, impacted by the slump in the price of crude oil and other commodities. The signs are of a rebound this year, with sukuk issuances already reaching US$50 billion in the first four months of the year. The Saudi announcement augurs well for the sukuk market next year. The Saudi Finance Ministry had also stressed that the kingdom plans to raise US$120 billion from the international markets by 2020. Saudi bankers expect a debut Saudi sovereign sukuk early next year and stress the need for a well-structured public borrowing policy in the international market.
#Malaysian banks may have dominated the sukuk market but in value terms the world’s top three sukuk managers, namely HSBC, Standard Chartered and JPMorgan Chase are ahead of any of the local top banks. Second Finance Minister Datuk Johari Abdul Ghani said that despite accounting for 54% of the global sukuk issuances, the country still lags behind global banks. He said local banks could not compete on this front because Malaysia lacks the presence of an Islamic mega bank. Malaysia had in the last 12 months issued 25 of the 30 largest sukuk issuances which collectively totalled US$37 billion (RM154 billion) in value. Thirteen of these sukuk offerings were domestic offerings. Johari urged the 57 member states of the Organisation of Islamic Cooperation (OIC) to consolidate their capabilities to produce higher global gross domestic product (GDP).
#Malaysia Building Society's (MBSB) move to strengthen its presence in Islamic banking is in line with majority shareholder Employees Provident Fund’s (EPF) endeavour. MBSB president Datuk Ahmad Zaini Othman said being a prominent Islamic player would help the firm’s growth plan. MBSB aspires to graduate from a non-lender into a full-fledged Islamic bank to increase its competitiveness. For the first six months ended June, MBSB’s net profit dropped 53.4% to RM97.8 million, despite an 11.6% jump in revenue to RM1.6 billion. The first-half results were below estimates, with operating income declining 1.8% as management continued to focus on corporate loans portfolio in place of the higher-yielding personal financing portfolio.
In #Malaysia islamic banking assets now stand at 27% of the total banking system, surpassing the targeted 20% under Bank Negara Malaysia’s financial sector master plan. Bank Negara governor Datuk Muhammad Ibrahim said there were now 27 players offering more than 100 financial products compared with fewer than four Islamic banks and takaful players before 2000. The Educator’s Manual on Shariah and Practical Operational Standards was launched on Tuesday to enhance the quality of education. Of the 14 syariah standards that are being developed by Bank Negara, Murabahah is the first series in the educator’s manual. The manual for other contracts will be developed gradually.
Over the last two decades, Islamic finance and socially-responsible investments (SRI) have become essential part of the development discourse. These two have seen the most rapidly growing areas of finance, of which Islamic financial assets have grown by 15-20% a year and its volume in 2014 exceeded US$2 trillion (RM8 trillion), while the SRI assets globally in the same year soared from US$13 trillion to US$20 trillion in two years. The principles of Islamic finance share common threads with SRI. These commonalities provide opportunities for Islamic finance to broaden its portfolio by tapping into the large amount of SRI funds available in global market.
Malaysia already started in August 2014, when it launched its Sustainable Responsible Investment Sukuk Framework to facilitate the financing of SRI initiatives. SRI sukuk can act as a compass for investors in the creation of shared value within society.
According to Standard & Poor’s the global sukuk market is expected to undergo correction for the next 6 to 18 months. The total issuance of sukuk fell in the first half of the year by 12.5% in contrast with the booming conventional debt as the oil exporting countries tapped the market to raise funding. The correction in the sukuk space started with Bank Negara Malaysia’s decision last year to stop the issue of short-term sukuk and switch to other instruments for liquidity management for Islamic financial institutions. S&P global head of Islamic finance Mohamed Damak said the positive news for sukuk is that the European Central Bank is opening its liquidity tap and with yields low, that could push investors to look at the sukuk market. He added that the sukuk industry needs more standardisation otherwise volumes will likely remain low.
For over three decades Turkish governments did not dare speak the name Islamic banking for fear of being branded radical. These institutions were officially named special finance houses, profit-and-loss banks, interest-free banks and more recently, participation banks. Now Islamic finance public policy is elevated to a pivotal position in the official management of the Turkish economy.
Ankara has recently embarked on a wholesale restructuring of its participation banking sector, which has seen the entry of three new banks including Ziraat Participation Bank, Halk Participation Bank and Vakif Bank. This brings the total number of participation banks in Turkey to seven including the four established ones, Kuveyt Turk Participation Bank, Albaraka Turk Participation Bank, Turkiye Finans and Asya Bank. Ankara is also keen in making Turkey a leading proponent of Islamic finance and developing Istanbul into an international financial centre.
1Malaysia Development (1MDB) agreed to the Request for Arbitration filed by International Petroleum Investment Company (IPIC) and Aabar Investments (Aabar). 1MDB is confident of its legal position and reiterated that, notwithstanding the dispute with IPIC, it would continue to honour its current debt obligations. Last month, 1MDB paid the RM1.579 million interest coupon on the RM2.4 billion Bandar Malaysia sukuk, due 2024. In May, 1MDB made a scheduled coupon payment amounting to RM143.75 million on its RM5 billion 5.75% Islamic Medium-Term Notes due 2039.
Bank Negara is reviewing the changes needed for the adoption of financial technology, or fintech.
As Bank Governor Datuk Muhammad Ibrahim said at the Global Islamic Finance Forum the bank wants to ensure that the regulatory framework remains appropriate to manage the risks, while encouraging productive innovation. Fintech has immense potential in Islamic finance. An estimated 10 to 40 % of overall banking revenues could be at risk by 2025 due to fintech innovations, according to a McKinsey research and CB Insights.
According to a report by Ernst & Young (2015), there were more than 300 Islamic financial institutions worldwide in more than 70 countries with Islamic banking assets estimated to reach US$1.6 trillion. The strong position of the Islamic financial institutions is largely attributed to the inherent stability of the Islamic financial system. Despite the achievements, Islamic banks are criticised due to favouring debt-based contracts rather than the equity-based contracts. This results in a lack of financial innovations aiming at financial inclusion, particularly to the poor in rural areas in the form of Islamic micro-financing.
Bank Muamalat CEO Datuk Mohd Redza Shah Abdul Wahid and MACC deputy chief commissioner Datuk Seri Mustafar Ali signed the Corporate Integrity Pledge of Malaysia Anti-Corruption Commission (MACC). The signing ceremony was also witnessed by Bank Muamalat chairman Tan Sri Dr Mohd Munir Abd Majid. The signing of the pledge signifies Bank Muamalat's declaration against corrupt practices and its resolve to work towards a highly principled business environment.
RHB Islamic International Asset Management (IIAM) has launched the RHB Islamic Asian Megatrend Fund, leveraging on the growth potential of Asian markets. According to RHB Group Asset Management managing director Eliza Ong the total assets under the fund stand at RM127 million. The fund is looking at a return of between eight and 12 per cent per annum over the next three to five years.
The Malaysian government, via special purpose entity Malaysia Sukuk Global Bhd, has successfully priced the 10-year and 30-year benchmark sukuk papers at 3.18 and 4.08 per cent. The new sukuk format uses non-physical assets to underpin the agency-based transaction wakala, instead of the traditional use of physical assets. Finance Ministry secretary-general Tan Sri Dr Mohd Irwan Serigar Abdullah said Malaysia has strengthened its position as a top investment destination.
Strong views were recently expressed by the Muslim Consumers Association of Malaysia that the Islamic banking and finance industry follows the letter but not the spirit of Islam. Islamic finance (IF) is developing at a remarkable pace. However, Islamic banking is now being accused of operating in a similar fashion as its conventional counterpart, and being skewed to more profit and business-driven interests than serving the real needs of a just society. The heart of Islamic finance involves a risk-sharing spirit, which does not prevail in the practices of contemporary Islamic banks. The importance of independent Syariah supervision will significantly influence the development of the Islamic capital market.
Al Rajhi Bank Malaysia (ARBM) has received approval from Bank Negara Malaysia (BNM) for the appointment of Steve Chen Thien Yin as its new chief executive officer (CEO). As CEO, Chen is responsible for the overall operations of ARBM’s business to maximize company growth as well as to take on the responsibility in developing strategies to drive the Islamic banking and finance business of ARBM. Prior to joining ARBM, he was the chief operating officer (COO) for Corporate and Structured Finance at one of Malaysia’s largest local banks, Hong Leong Bank Berhad. Chen has held senior positions in various international foreign banks including J.P. Morgan, Royal Bank of Scotland, and Standard Chartered Bank.
The Securities Commission Malaysia (SC) plans to launch the Islamic Fund and Wealth Management Blueprint by July to strengthen Malaysia’s competitive position in the global Islamic financial sector. SC chairman Datuk Seri Ranjit Ajit Singh said the SC was in the final stages of formulating the blueprint, which would be launched by the first half of the year and the action plan rolled out over five years. First announced by Prime Minister Datuk Seri Najib Razak at Invest Malaysia in April last year, the action plan aims to chart the medium- and long-term strategic direction for the industry as well as map out strategies to strengthen the country’s Islamic capital market.
The prospects for Islamic finance remain strong despite the inevitable correlation between oil price and Islamic wealth. Bahrain Central Bank Governor Rasheed Al Maraj said while there were some headwinds recently, the long-term growth picture within its strongest markets in the Middle East and Southeast Asia remained robust. There is a clear demand for Shariah-compliant financial products and services. As the industry matures, it is able to do more to meet that demand, he explained. Rasheed also highlighted that it was imperative for the industry to continue addressing challenges that could hamper longer-term growth such as investment in education and training.
Tenaga Nasional Bhd (TNB) is asking bankers to submit pitches for a US$3 billion (RM13 billion) sukuk programme, and proceeds will be used to fund overseas investments, including the purchase of a 30 per cent stake in Turkish power firm Gama Enerji AS for US$243 million. The company last issued dollar-denominated debt in 1996, when it sold 100-year conventional notes. Bankers’ proposals for TNB’s sukuk programme had to be submitted by the end of this week. TNB is rated “BBB+”, the third-lowest investment grade by Standard & Poor’s and Fitch Ratings. The yield on the company’s existing conventional dollar bonds due 2025 climbed 31 basis points last year to 4.39 per cent and was 4.33 per cent yesterday.
ax incentives under the 2016 Budget to promote Sustainable and Responsible Investment (SRI) Sukuk are timely as interest in these instruments are on the rise. The budget proposes that tax deduction be given for five years on issuance costs of SRI Sukuk. Maybank Islamic Bhd CEO Datuk Muzaffar Hisham noted that SRI Sukuk can also be the avenue for financial inclusion which has been strongly championed by the Islamic finance industry as a whole. RHB Islamic Bhd CEO and managing director Ibrahim Hassan said any project has to first be attractive to investors. The next stage will then be to choose the best funding option, and this is where the incentives for SRI Sukuk could make it a cost-effective option.
Maybank Islamic Bhd is optimistic that Malaysia's financial sector will hold strong in the current turmoil and weather through the storm. Its chief executive officer Datuk Muzaffar Hisham is also confident that foreign investors will continue to invest in Malaysia's financial sector for the long run. Muzaffar was speaking to reporters after the signing ceremony between Maybank Islamic and the Selangor State Government for a new home financing package. On Thursday, Maybank Islamic recorded a revenue of RM1.9 billion for the first half ended June 30, 2015. Muzaffar said the group is expecting a lower loan growth for the second half of this year and will continue to monitor closely to maintain sustainability for the next few quarters.