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Friday, 18 May 2012

London Islamic bank eyes Middle East expansion

Sharia-compliant Bank of London and the Middle East (BLME) is targeting the thousands of rich Gulf residents who have ties to the UK to boost its corporate and private banking business.


Britain’s largest standalone sharia bank was set up in London in 2006 and does not have a presence in the Middle East, although expansion into this region was always part of the long-term plan.



It is now awaiting regulatory approval to start operations in the Gulf, initially with a representative office this year, and a branch or subsidiary in the longer term, Chief Executive Humphrey Percy told Reuters in an interview.

“The premise on which we set up BLME, which was to send skills and products and services and human capital in both directions, between London and the Middle East ... is just as valid now as in 2006,” said Percy.


The bank, which fully complies with Islamic principles, including a ban on interest, was founded in 2006 with the backing of Kuwaiti investors, including Boubyan Bank.



The UK is the largest Islamic finance center in Europe, with 19 billion dollars out of global assets of 1.7 trillion dollars and is home to five fully sharia-compliant banks, data from the UK Islamic Finance Secretariat (UKIFS) estimates.



Whilst a fraction of the size of the conventional banking sphere, BLME, which offers corporate banking and wealth management, will look to tap into the pools of investment money in the oil-rich Gulf that have been relatively untouched by the global financial crisis.



It has assets under management of around 100 million pounds ($159.2 million) across three funds.



Earlier this year, the bank launched a property advisory service for private clients mostly domiciled in the Middle East, looking for advice on acquisitions as well as help with financing.



“At the moment the asset class of choice in the Middle East is property, in particular central London property,” said Percy.



Although weathering the global financial crisis of 2008 with relative stability, the bank posted its first loss in 2011, after a 14.6 million-pound loss on a loan to a Turkish manufacturing business.



“This particular client chose very much the eleventh hour, literally the last week of the year, not to repay us and in those circumstances the board felt it had no alternative but to make a full provision and pursue them robustly in 2012,” said Percy.



Stripping out impairment charges, operating profit for 2011 would have risen 10 percent on the previous year to 4.35 million pounds.



The bank grew customer deposits by 128 percent and improved its balance sheet by 13 percent to 807 million pounds in 2011, although Percy admits the strength of the UK market will be affected by the euro zone crisis.


(Al Arabia News / 17 May 2012)


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Afghanistan mulls sukuk, the Islamic bonds

(Reuters) - Afghanistan, which has only a semblance of a capital market, intends to sell Islamic bonds as it braces for a possible sharp fall in Western financial support as the war against the Taliban winds down, a senior central bank official said this week.

The official said the sale of short-term Islamic bonds, also known as sukuk, is still in the planning stage, but could be a new way of raising money for the government.

"The purpose is so that the ministry of finance can have tools for their financing to cover their expenses," Khan Afzal Hadawal, first deputy governor at the Afghan central bank, told Reuters in an interview.

"We have to develop the financial markets of Afghanistan. We have to offer those instruments not only for the banks, (but) so that the government has an alternative to finance their projects and the central bank can control money growth."

Billions of dollars in Western aid have propped up the economy since the Taliban government was toppled in 2001. Now Afghanistan faces the prospect of Western cash evaporating after most foreign combat troops withdraw by the end of 2014.

One of the world's most unstable, corrupt countries hopes financial creativity based on Islamic sharia law will help soften the blow, and ultimately deepen its nascent financial markets.

The sukuk are expected initially to be issued in the Afghani currency and offered to local banks within the next year. They may gradually be expanded to medium- and long-term bonds.

A draft law on the bonds must be approved by the justice ministry, and possibly parliament, and should be completed by the end of September, Hadawal said.

Afghanistan may need around $7.8 billion a year in foreign funding to help pay its security and other bills after most U.S.-led NATO combat troops leave, according to the World Bank. It is likely to receive about $4.1 billion in aid for its security forces per year after 2014, but that number could fall.

In the runup to a NATO summit this weekend, the U.S. government has been pressing reluctant European allies to offer around one third of the estimated $4 billion annual cost of financing Afghan forces after 2014.

If international backers slash funds severely, Afghanistan's government may be forced to reduce spending on security and development, making it even more unpopular, and its control of the country even more fragile.

The reputation of Afghan financial institutions was badly damaged in 2010 by a scandal involving Kabulbank, which gave hundreds of millions of dollars in unsecured and undocumented loans to the country's elite, including sitting ministers.

SOMETHING NEW, SOMETHING SECURE

The government hopes the Islamic bonds will give Afghans a sense of stability, and expand financial activities beyond the primary and secondary markets for central bank paper.

"(Sukuk) are something new and people have access to financing, something compliant with sharia ... and the most important thing is, something very secure, guaranteed and people are not worried that they will lose it," Hadawal said.

Islamic bonds will gradually replace capital notes that used to manage liquidity and have weekly auctions of around $40-$80 million depending on market conditions, central bank officials said. Total investment in capital notes stands at around $714 million with yields of about 2.13 percent for 28-day paper.

Unlike mainstream bonds, sukuk do not involve interest payments, which are forbidden in Islamic finance. Instead, holders receive returns from underlying assets.

Details of the assets, amount, maturities and issuance time-frame would be determined after Afghanistan gets technical assistance from the International Monetary Fund, Hadawal said.

"We do not have the people ... who are familiar with the products, with the terms and then with the maturities," he said.

The Afghan finance ministry declined to comment.

Afghanistan is one of the poorest countries in the world, with annual per capita income of just $528. Its fast-growing population means that to provide jobs, the economy must expand far more rapidly than in other countries.

The central bank forecasts economic growth of 7.3 percent this year versus 3.7 percent in 2011, driven by agriculture and agri-business, but future expansion is likely to depend on major mining projects coming online.

(Reuters / 17 May 2012)


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

Libya approves Islamic banking law

May 17 (Reuters) - Libya has approved an Islamic banking law that will introduce sharia-compliant banking in the North African country, a member of the ruling National Transitional Council (NTC) said on Thursday.

Libya has been working to amend its banking laws to attract foreign investment and stimulate its private sector following last year's war that ousted Muammar Gaddafi, the central bank governor has said.

NTC Chairman Mustafa Abdul Jalil said in October Libya's new rulers were working on an Islamic banking system. The central bank submitted a proposal on this to the council for approval in the last few months.

"The NTC has adopted the central bank's proposal regarding Islamic banking," Salwa Al-Dgheily, a member of the NTC judicial committee, told Reuters. She said it was up to the central bank to now announce the law.

The central bank has been looking to update a 2005 banking law which first allowed foreign banks into Libya. (Reporting by Ali Shuaib; Editing by Elaine Hardcastle)

(Reuters / 17 May 2012)


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

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