Malaysia: Contribution from financial services sector increasing

THE financial services sector must serve the needs of businesses and consumers in a high-income economy in addition to expanding its regional and global marketreach.

The sector’s share in the country’s gross domestic product (GDP) has been increasing from an average of 9.9% between 2000 and 2005 to 10.9% from 2006 to 2009.

It targets to raise total gross national income (GNI) to RM180.2bil and create 275,400 new jobs by 2020. The financial services’ National Key Economic Area (NKEA) has four key thrusts: strengthening the core; serving the needs of a high-income population; developing new sectors; and going on the offensive.

This entry point projects (EPP) targets to expand Bursa Malaysia’s market capitalisation to RM3.9 trillion by 2020. Liquidity is targeted to improve from 31% of total market capitalisation to 60%. This EPP is expected to create incremental GNI of RM2.2bil and 9,000 additional jobs by 2020.

Another key initiative would be the listing of key privately-held government-linked companies (GLCs) to further boost stockmarket liquidity and the number of large cap stocks.

Bursa was upgraded to Advanced Emerging within the FTSE’s Global Equity Index. The country’s weightage in the MSCI Emerging Markets Index increased from 2.9% to 3.2%.

Bursa has partnered with Chicago Mercantile Exchange to allow global traders to access Bursa’s derivative products electronically.

As at the third quarter of 2011, the Securities Commission (SC) approved 12 applications for initial public offering (IPO) on the Main Market. It also approved seven applications for IPOs on the ACE Market.

Initiatives would be implemented to improve liquidity and scale the market with greater focus on retail and institutional investor segments. To do this, Bursa would continue to diversify its Islamic and conventional product offering and also address structural issues that would help to spur investor participation in the market.

Another EPP is to develop regional bank champions.

The Government and Bank Negara would be assisting banks to establish meaningful presence in priority markets and expand beyond Asean through the acquisition of banking assets.

Malaysian banks would increase the proportion of overseas income over total profits to 27% by 2020. The EPP targets incremental GNI of RM5.6bil in the financial services sector by 2020.

Bank Negara has entered into memorandum of understandings with China Banking Regulatory Commission, Bank Indonesia, State Bank of Vietnam and National Bank of Cambodia. Continuous Trans-Pacific Partnership (TPP) discussions were held as well. Moving forward, discussions and negotiations for Free Trade Agreements are expected to continue in the coming years.

Greater collaborations and best practices among Asean regulators and financial institutions would remain a key agenda. Becoming the indisputable global hub for Islamic finance is another EPP. The nation aspires to become the intellectual and capital centre for Islamic finance with global share of Islamic banking assets targeted to increase from 8% in 2009 to 13% in 2020.

This EPP is expected to create incremental GNI of RM7.2bil and 12,000 jobs mainly in Islamic banking activities and takaful by 2020.

In the sukuk market, Malaysia accounts for 64% of global sukuk as at end-2010 and Bursa is also the leading exchange for listed sukuk.

In the fund management industry, Malaysia has the largest number of Islamic funds, with 163 Islamic unit trusts.

Bloomberg has also launched a non-ringgit denominated sukuk index which was developed in conjunction with Bank Negara.

The Government’s commitment to further encourage sukuk issuances is evident from the wide range of tax incentives provided to issuers.

In 2011, Bursa Suq Al-Sila’, a commodity trading platform dedicated to facilitate Islamic liquidity management and financing by Islamic banks was introduced.

(The Star Online / 03 April 2012)

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Malaysian Islamic insurers plan to expand in Indonesia

Malaysia’s biggest Islamic insurers plan to expand in Indonesia, taking advantage of industry growth that’s almost three times the pace of their home market and increasing wealth in the world’s most-populous Muslim country.

Mayban Ageas, the nation’s largest insurer, is considering an acquisition in Indonesia, chief executive officer Hans De Cuyper said in a March 6 interview. Syarikat Takaful Malaysia Bhd, the second biggest, estimates its Indonesian unit will generate 50 per cent of its profits, from less than 10 per cent now, managing director Hassan Kamil told reporters in Kuala Lumpur on March 7, without giving a timeframe. Indonesia’s Muslim population is 213 million compared with 17 million in Malaysia, US government data show.

Syariah-compliant insurance, known as takaful, rose 48 per cent in Indonesia in 2010 to 4.5 trillion rupiah (US$489 million), while Malaysia’s market expanded 17 per cent in the first seven months of last year to more than 10 times that size. Indonesia has the equivalent of US$7 billion of corporate Islamic bonds outstanding, compared with US$76 billion for its Southeast Asian neighbour, according to data compiled by Bloomberg.

“Indonesia is a very hot market,” said Kuala Lumpur-based Cuyper, whose company is the insurance unit of Malayan Banking Bhd, the nation’s top lender. “The growth potential is significant.”

Southeast Asia’s biggest economy had five takaful companies in addition to 35 booths offering syariah-compliant insurance at non-Islamic operators as of September, according to the Jakarta- based Indonesian syariah Insurance Association. Malaysia currently has 12 such insurers after the central bank issued four new licenses in 2010, while takaful assets totaled RM16.6 billion (US$5.4 billion) in July, the Finance Ministry’s annual report issued in October showed.

Rising wealth in Indonesia makes the country an attractive destination for Malaysian insurers, amid increased domestic demand, Syed Moheeb Syed Kamarulzaman, chairman of the Malaysian Takaful Association in Kuala Lumpur, said in an e-mail March 9.

Indonesia’s per capita gross domestic product increased an estimated 6.8 per cent to US$4,700 last year, according to US government data. Muslims account for 86 per cent of Indonesia’s total population of 248 million and 60 per cent of the 29 million people in Malaysia, the data show.

Takaful is based on the Quranic principle of mutual assistance, where policy holders contribute a sum of money to a common pool managed by the company. The funds are used to pay for claims and any excess is returned to customers.

Global takaful growth has been hampered by the limited supply of syariah-compliant debt, which pays returns on assets to comply with Islam’s ban on interest. Operators have been calling for more sukuk maturing beyond 10 years to help them better manage their longer-term liabilities and roll out new products.

Malaysia’s government is taking measures to address the shortage with plans to sell its first 15-year Islamic bonds in June to help meet demand from insurers and banks, according to the central bank’s debt-auction calendar. Highway operator PLUS Bhd. sold RM30.6 billion of sukuk in December, a record offering of syariah-compliant notes from Malaysia, with maturities ranging from five to 27 years. The 19-year portion yielded 5 per cent.

Global sales of syariah-compliant bonds totaled US$9.4 billion this year, compared with US$4.8 billion in the same period of 2011, according to data compiled by Bloomberg. Offerings reached a record US$36.3 billion last year.

Average yields on Islamic debt declined three basis points, or 0.03 percentage point, in the first three days of this week to 3.67 per cent, near the lowest level in more than four months, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index. The difference between the average yield and the London interbank offered rate, or Libor, narrowed 17 basis points to 244 basis points, the least since Oct. 31.

Sukuk sold to international investors returned 2.2 per cent in 2012, according to the HSBC/Nasdaq index, while debt in developing markets climbed 5.7 per cent, JPMorgan Chase & Co’s EMBI Global Composite Index shows.

Yields on Malaysia’s 3.928 per cent dollar-denominated Islamic securities due in June 2015 were little changed at 1.96 per cent today, two basis points above the record low reached on March 2, according to prices from Royal Bank of Scotland Group plc. The difference in yields between Dubai’s 6.396 per cent sukuk maturing in November 2014 and Malaysia’s shrank 14 basis points to 222 basis points, according to data compiled by Bloomberg.

Companies in Malaysia issued a record RM75.6 billion of sukuk in 2011, with 88 per cent due in less than 10 years, according to data compiled by Bloomberg. In Indonesia, the ratio was 57 per cent of 1.2 trillion rupiah.

“Demand for long-dated Islamic paper would increase in tandem with growth in Islamic insurers,” Michael Chang, who oversees US$1 billion as head of fixed income at MCIS Zurich Insurance Bhd in Kuala Lumpur, said in an interview yesterday. “This also jives with the inaugural issuance of the 15-year government sukuk this year.”

Ernst & Young LLP estimated in July that customers would contribute US$12 billion to Islamic insurance policies in 2011, a 32 per cent increase from a year earlier and amounting to 1 per cent of the total industry. The company’s World Takaful Report for 2012 will be issued in April.

Bank Negara Malaysia will provide details of the domestic Islamic insurance industry in its 2012 annual report to be unveiled on March 21. Indonesia will release similar data in April, Yatty Nurhayati, the head of the syariah-compliant insurance division at the insurance bureau of the Capital Market and Financial Institution Supervisory Agency, said yesterday.

“The domestic market will steadily become more competitive and eventually the pursuit for continued growth will lead to more and more players’ consideration of expansion abroad,” the Malaysian Takaful Association’s Syed Moheeb said. -- Bloomberg.

(Business Times / 15 March 2012)

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Consultant/Trainer/CEO:
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Qatar: $1bn Islamic bank in Doha

KHARTOUM: A tripartite agreement has been signed here yesterday to establish a large Islamic bank in Doha with a capital of $1 billion. Sudan President Omar Al-Bashir attended the signing by Qatar Islamic Bank, Islamic Development Bank and Dallah Albaraka Group.

"The three founders have subscribed to half of the new bank's capital ($500 million)," an official statement issued by IDB said.

Ahmed Muhammad Ali, president of IDB, said the new bank would facilitate the establishment of a financial market by Islamic banks and provide innovative solutions for liquidity management.

The IDB chief disclosed plans to establish an Islamic capital market with share-exchanging facilities. "The new bank will finance infrastructure projects and offer a number of Shariah-compliant products," he added.

The new bank was established at IDB's initiative to tackle a lack of major financiers and the absence of exchangeable Islamic tools and a liquidity market for Islamic banks.

Abdul Aziz Al-Hanai, vice president of IDB, said the new bank meets the need for a strong organization that can carry out liquidity management on the basis of Shariah and ensure strong and stable finance in the market.

He said the new bank would have branches in different countries and regions. He commended Qatar's support to Islamic banking, adding that it would contribute to the system's worldwide expansion.

Meanwhile, the 37th conference of IDB board of governors began in Khartoum yesterday with the participation of finance ministers and central bank governors from 56 OIC countries.

In his opening address, Al-Bashir said Islamic countries can jointly become a strong economic union if there is a political will. "The concept of development should be based on justice," he added.

(Arab News.Com / 03 April 2012)

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Alfalah Consulting - Kuala Lumpur:
www.alfalahconsulting.com
Consultant/Trainer/CEO:
www.ahmad-sanusi-husain.com
Islamic Investment Malaysia:
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Saudi Arabia leading Sukuk issuer in GCC in Q1 2012

Saudi Arabia has overtaken the UAE to become the largest Sukuk issuer in the Gulf region, raising $6.4 billion in Q1 2012, compared to issuance of $1.9 billion by the UAE.

"UAE's position as the top sukuk issuer in the GCC was shaken for the first time. Yet, the UAE had its share of firsts. Tamweel, First Gulf Bank and Emirates Islamic Bank sold Sukuk. They were followed by Majid Al Futtaim Group's first foray into bond issuance in the form of Sukuk. And Abu Dhabi National Energy Company sold its first Sukuk in Malaysia," Adnan Halawi, Team Leader - Fixed Income at Zawya, said in a quarterly bulletin.

Malaysia accounted for 71 per cent of total issuance and was the top Sukuk issuer with $31 billion followed by Saudi Arabia ($6.4 billion, 15 per cent of the total) and Indonesia ($3.4 billion). Overall Sukuk issuance in Q1 was up 55 per cent on year-ago levels to reach a record $43 billion worldwide - nearly half of the whole of 2011. Halawi added that Sukuk issuance in 2012 could reach $126 billion by the end of this year, compared to $85 billion last year. 

Sukuk issuance in the GCC exceeded corporate bonds for the first time ever. "Saudi Arabia was the star of the first quarter. In the absence of any conventional bonds out of the kingdom, a flurry of Sukuk made the headlines. In line with analyst expectation that the issuance of the first sovereign Sukuk in the kingdom would set the benchmark and trigger more issuance, GACA's $4 billion Sukuk was shortly followed by a series of Islamic bonds by Almarai, Saudi Electricity - which sold its first global Sukuk - and Saudi British Bank," Halawi said in the note.

(C.P.I Financial / 07 April 2012)

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Alfalah Consulting - Kuala Lumpur:
www.alfalahconsulting.com
Consultant/Trainer/CEO:
www.ahmad-sanusi-husain.com
Islamic Investment Malaysia:
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