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Monday, 3 September 2012

Malaysia: Affin gets support from HK shareholder for stake acquisition in Bank Muamalat Malaysia

PETALING JAYA: Affin Holdings Bhd has garnered the support of its Hong Kong-based shareholder Bank of East Asia Ltd (BEA) for the possible acquisition of a stake in Bank Muamalat Malaysia Bhd, banking sources said.
The Hong Kong Stock Exchange-listed BEA, in which tycoon Tan Sri Quek Leng Chan owns 15.09% through Guoco Group Ltd, holds a 23.52% block in Affin.
While discussions were still preliminary, the source told StarBizWeekthat Affin was looking to strengthen its niche in Islamic banking via an interest in Bank Muamalat, one of the country's two standalone Islamic banks.
Affin, the country's second-smallest lender, said last month it had received the nod from Bank Negara to begin negotiations with DRB-Hicom Bhd and Khazanah Nasional Bhd, which own 70% and 30% of Bank Muamalat respectively, for a potential stake sale.
The talks are to be completed on or before Dec 31.
Although details on pricing are not known at this juncture, an analyst pointed out that using Hong Leong Bank Bhd's merger with EON Capital Bhd as a benchmark, a sale could go through at 1.5 times price-to-book value.
Hong Leong Bank completed its RM5.06bil takeover of EON Capital in May last year, making it the fourth largest banking group here.
Affin had total assets of RM54.65bil as at end-June and Bank Muamalat RM20.5bil at end-March, according to RAM Ratings.
The Tan Sri Syed Mokhtar Al-Bukhary-controlled DRB-Hicom tried to pare down its holdings in Bank Muamalat last year to Bank Islam Malaysia Bhd and in 2010 to Bahrain-based Al Baraka, but both attempts fell through.
The central bank had allowed DRB-Hicom's acquisition of Bank Muamalat in Oct 2008 on condition that it would reduce its equity in the bank to 40%.
CIMB Research said in a note dated Aug 17 that a merger between Affin and Bank Muamalat would increase Affin Islamic Bank's asset size by 60% to make it the fifth-largest Islamic bank in Malaysia from 10th place currently.
“This, to a certain extent, would give the group the scale to compete with its larger peers like Maybank Islamic, CIMB Islamic, Bank Islam andPublic Islamic Bank,” it said.
(The Star Online / 01 Sept 2012)

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Bank Negara Malaysia pushing Islamic banks to compete regionally

Malaysia’s Second Capital Market Master Plan (CMP2) has projected that the size of its Islamic capital market would grow by an average of 10.6% per annum to reach 2.9 trillion ringgit by 2020. Of the amount, the sukuk segment is expected to account for 46% or 1.3 trillion ringgit (US$406.25 billion).

For many market participants, the key to achieving this growth is the further internationalization of the Islamic capital market.

“The next phase of growth of the Islamic capital market will be characterized by greater internationalization which entails, among others, a growing number of product issuers and service providers expanding beyond their home markets, more investors seeking products or instruments with international exposure, as well as greater diversity in terms of currencies used in issuing Shariah-compliant instruments,” says Zainal Izlan Zainal Abidin, executive director for Islamic capital market at the Securities Commission Malaysia, on June 27 when he addressed the 7th Islamic Markets Programme in Kuala Lumpur.

The sukuk market is proving to be an important platform in international fund-raising, with the outstanding volume amounting to US$180 billion at the end of 2011, compared with just US$33 billion in 2006, of which 66% originated from Asia. In 2012, the global sukuk issuance is projected to be US$44 billion, with Malaysia accounting for 60%.

Underpinned by Malaysia’s status as a leading Islamic financial centre, the country’s major Islamic banks are at the forefront of this internationalization exercise as they step up their regional expansion. CIMB Islamic has taken the task of assisting the development of the Islamic capital markets outside of Malaysia, actively providing advisory services to various governments and government entities that are committed to establishing the Islamic finance frameworks for their respective domestic capital markets such as Indonesia, Thailand, Singapore, South Korea, Hong Kong and the UK.

Boosting presence in Asean

In Indonesia, CIMB is a member of a committee set up by the government to provide inputs on Islamic financing issues including the drafting of the sukuk law. It has been involved in the development of the Indonesian Islamic capital markets that included its participation as a principal dealer for Indonesian government securities and as a selling agent for the inaugural sovereign retail sukuk amounting to 5.56 trillion rupiah (US$584.34 million) in 2009 and another 7.34 trillion rupiah retail sukuk in 2011.

CIMB Islamic is conducting its Islamic banking business in Indonesia through CIMB Niaga Syariah, the Islamic finance window under Bank CIMB Niaga. It is now the sixth largest Islamic financial institution in the country in terms of assets.

“Our Indonesian business is growing from strength to strength,” says CIMB Islamic CEO Badlisyah Abdul Ghani. “Our business grew by 88% in 2011 and that shows you its growth potential. Our Indonesian platform is fully in place in terms of branches and Islamic products. We started with only 11 products in Indonesia, now we have close to 60 products. So we have put in place all the ingredients needed for future growth and we are ready to reap the fruits of our work.”

In Singapore, the CIMB group has expanded its business in 2011 to include Islamic commercial banking over and above its traditional wholesale banking business.

This should bring to three – Indonesia, Malaysia and Singapore – the countries in the Asean region where it has universal banking offering. “The growth of our small and medium enterprise business has been encouraging,” says Badlisyah. “We are aiming to approve S$100 million in Islamic financing in 2012. Our pipeline is fairly robust and we should meet our target – and perhaps even exceed it.”

In Thailand, the focus for CIMB Islamic is on wholesale banking and it is seeing traction in its potential with the changes in the government regulations. “We should see some pick-up in our business in 2012,” Badlisyah points out.

The bank is working closely with the working committee set up by the Thai government to deliberate on matters pertaining to the development of Islamic finance in the country. Various discussions have been held with representatives from the Public Debt Management Office, Securities and Exchange Commission (SEC), Revenue Department and the Islamic Bank of Thailand on the resolution of legal and tax issues with the aim of putting in place a legal and tax framework for Islamic finance. To this end, the SEC has issued sukuk guidelines in relation to the Thai baht market.

In the Philippines, where the CIMB Group has recently acquired majority control in Bank of Commerce, Badlisyah says the possibility of establishing an Islamic finance window must be looked at carefully.

“It should be done for the right reason and it must be done based on the viability of the business,” he says. “Just as in Thailand, there is a potential for Islamic finance in the Philippines, but we really need to make sure that when we launch such business, it should be sustainable in the long-run.”

Maybank Islamic too is keen on ramping up its regional presence. Its expansion plans focus on key Asean markets, though ultimately, it also aims to expand into the opportunistic markets of London, Hong Kong/China and the Middle East. “A lot of our key business is still in Malaysia, which accounts for between 90% and 95% of our profit,” says the bank CEO Muzaffar bin Hisham.

“Singapore and Indonesia are the next markets that we are working on. We were able to grow our cross-border financing to Indonesia to US$600 million after changes in the tax structure. We are echoing the drive by Bank Negara Malaysia on the internationalization of Islamic finance, in line with the CMP2.”

As the bank expands into Indonesia, it is eyeing to arrange syndication loans in an Islamic format. “If we feel the client is comfortable to proceed to arrange a transaction in an Islamic format, we will certainly do so and that is where the collaboration between Maybank Islamic and Maybank Investment Bank (Maybank IB) will come into play, as there are intricacies in Islamic finance on deal structuring that would require the expertise of Maybank Islamic,” says Michael Oh-Lau, regional head of debt markets at Maybank IB.

More competition coming

Maybank Islamic has currently two vehicles in Indonesia –Bank Internasional Indonesia (BII) and Maybank Syariah Indonesia (MSI). BII has its own Unit Usaha Syariah dealing mostly in retail financing, while MSI deals with the corporate and wholesale segments. In 2011, BII launched a traveller savings account-i based on mudaraba principles that provides travellers with both an ATM card and a debit card. (The ‘i’ suffix stands for ‘Islamic’.)

In Singapore, it launched its first Shariah-compliant savings account for pilgrims going on the Hajj to Mecca and an Islamic financing package for SMEs seeking financing for completed commercial and industrial properties.

Meanwhile, the Maybank group, through Maybank IB, has raised its stake in Saudi Arabia-based Anfaal Capital to 35.17% by acquiring another 17.17% interest in the financial institution in April this year. The acquisition represents a good opportunity for Maybank IB to increase its presence in Saudi Arabia and play a more significant role in unlocking Anfaal’s potential, especially in the area of syndication, sukuk structuring and project financing in the country.

Hong Leong Islamic Bank too is open to cross-border opportunities and the bank CEO Raja Teh Maimunah Raja Adbul Aziz has expressed interest in the China market.

“If there is an opportunity, I would really like to look at China because that is where the strength of Hong Leong is,” she points out. “China has a decent population of Muslims that we can tap into.”

Hong Leong holds a 20% equity in Bank of Chengdu Company, a commercial bank located in Chengdu, Sichuan. The two partners have a consumer financing joint venture called Sichuan Jincheng Consumer Finance, tapping into growing financial services sector in China.

But for Islamic banking to take off in China, Raja Adbul Aziz says it needs to have the tax regulations for the industry. “For me, the growth of Islamic banking is very much tied to tax laws,” she points out. “If you look at Indonesia, despite having the Islamic Banking Act implemented in 2010, Islamic banking did not quite take off because the tax laws were only addressed late in 2011.” 

(The Asset / 03 Sept 2012)

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Malaysia: Islamic banking lifts MBSB profit

KUALA LUMPUR: Financial group Malaysia Building Society Bhd (MBSB)reported RM93.65mil in net profit for the second quarter ended June 30, a 19.7% jump from RM78.24mil a year earlier, boosted by its Islamic banking business.
“The improved financial results were mainly due to the increase in net income from Islamic banking operations principally contributed by the retail segment,” the company said in a statement.
MBSB's revenue increased by 54.5% to RM444.47mil from RM287.72mil. Earnings per share were lower at 7.70 sen compared with 10.52 sen previously.
MBSB increased its dividend payout to 4.5 sen from 3.75 sen a share.
In the first half, MBSB's earnings increased by 18.1% to RM173.06mil from RM126.52mil while revenue increased 41.4% to RM823.35mil from RM582.22mil.
MBSB president and CEO Datuk Ahmad Zaini Othman said the growth in revenue from the retail segment was mostly due to good response from customers towards MBSB's personal-financing-i “transfer package” launched early of the year and extended into the second quarter.
“We also saw improved growth in home financing assets especially for those development projects that we finance. Nevertheless, the expansion in retail segment is well supported by a good credit evaluation process resulting in quality assets and applicants,” he said.
Ahmad Zaini said the group's non-performing loan ratio stood at 5.6% as at June 30 from 8.5% as at Dec 31, 2011.
Net loan, advances and financing increased to RM21.9bil as at June 30, up 44% from RM15.2bil as at Dec 31, 2011.
(The Star Online / 31 Agst 2012)
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Islamic Banking Knocks Germany’s Doors

CAIRO – Turkey's Kuveyt Turk investment fund plans to open the first Islamic bank in Germany in October, amid hopes of overcoming the bad effects of the ongoing euro crisis and get a share of the successful Islamic banking pie.
"The idea of an Islamic bank is that it adheres to Islamic investment guidelines and principles," Zaid el-Mogaddedi, founder and director of the Institute for Islamic Banking and Finance (IFIBAF) in Frankfurt, told Deutsche Welle on Saturday, September 1.
Istanbul-based financial institute Kuveyt Turk would open the first Islamic bank of its kind in Germany next October.
Germany Tastes Islamic Finance
The bank was introduced as many Europeans hope to sign on to a banking institute that offers only transactions backed by tangible assets rather than highly speculative financial management which caused the ongoing euro crisis.
"You have to see that it in the Islamic financial system are also mechanisms that mimic the interest rate effect - though it is not the same," said Martin Schulte, an Islamic banking expert at the Association of Foreign Banks in Germany.
"Money is fruitless, that is to say that simply transferring money does not create economic value," he said.
"It is a medium of exchange, which itself has no economic power."
Conventional banking, however, is partly based on the concept that lending money is a service in itself that is worthy of compensation.
"But in the Islamic understanding it is possible to develop products that are economically useful and complement the conventional banking business from a macro perspective very well."
Islam forbids Muslims from usury, receiving or paying interest on loans.
Islamic banks and finance institutions cannot receive or provide funds for anything involving alcohol, gambling, pornography, tobacco, weapons or pork.
Shari`ah-compliant financing deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships.
Investors have a right to know how their funds are being used, and the sector is overseen by dedicated supervisory boards as well as the usual national regulatory authorities.
Introduced years ago in different European countries, experts hope German new Islamic funds to be more successful than that of UK and France.
"The decisive point will be whether the Islamic banks offer an attractive product portfolio and good services," El-Mogaddedi from the Institute for Islamic Banking and Finance, said.
Also “whether the communication is clear enough to bring Muslims and non-Muslims to the bank as an attractive alternative,” he added.
A study published in 2012 by the Stresemann Institute found that "Islamic finance" had failed in European countries because Muslim customers had lower income levels and thus little investment potential.
But El-Mogaddedi said the failure of Islamic financial products in Europe came down to bad marketing.
Staying reluctant for years to taste the booming industry, an Islam-conform investment fund was established in Germany in May 2012 by the Malaysian asset manager CIMB Principal.
The fund was approved by the German Financial Supervisory Authority (BaFin).
Germany has between 3.8 and 4.3 million Muslims, making up some 5 percent of the total 82 million population, according to government-commissioned studies.
The new Islamic finance targets Germany’s roughly 4 million Muslim residents, along non-Muslims.
Islamic banking is one of the fastest growing financial sectors in the world.
Islamic financial products got their first major boost after the 9/11 attacks on the United States.
Many Arabs withdrew their money from the US at the time, and some of those funds, according to Abdullah, ended up in Malaysia and the Gulf states.
A second boost came during the international financial crisis, when Islamic financial products actually showed profits.
The Dow Jones Islamic Market Titans Index, which tracks the 100 biggest Islam-compliant businesses in Europe, the US and Asia, has nearly doubled over the last five years.
The Shari`ah-compliant system is now being practiced in 50 countries worldwide, making it one of the fastest growing sectors in the global financial industry.
Currently, there are nearly 300 Islamic banks and financial institutions worldwide whose assets amounting to $1.6 trillion (1.2 trillion euros).
(On Islam / 01 Sept 2012)

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