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Sunday, 7 October 2012

Malaysia: Islamic banking expands in Sabah

The positive assessment of recent progress at Sabah’s state banks underlines the confidence in the potential of its financial services sector, particularly in the area of Islamic finance.

In July, Malaysia-based RAM Ratings reaffirmed the Sabah Credit Corporation’s (SCC’s) ‘AA1’ and ‘P1’ issue ratings, stating that the state financial institution had a stable outlook.

In the previous month, RAM Ratings also assigned long- and short-term issue ratings of ‘AA1’ and ‘P1’ to the Sabah Development Bank (SDB), noting the ‘strategic role’ the financial institution played in supporting the state’s goals.

The positive rating for the SCC came just weeks after it issued three tranches of sukuk, with tenures of five, seven and 10 years, amounting to RM200 million (US$65.38 million).

In August, the SDB also issued three tranches of five, seven and 10-year bonds, with a total size of RM500 million (US$163.44 million).

In May, Vincent Pung, the chief executive officer (CEO) of the SCC, told local media that the first issuance of the corporation’s sukuk programme in December 2011 had strengthened the bank’s funding base, supporting the growth of its sharia-compliant business.

“The SCC’s profitability is an indicator of its success, recording a surplus before tax of RM51.7 million (US$16.89 million) for the financial year 2011.

This was an increase of RM9.3 million (US$3.04 million), or 22 per cent, from the audited surplus before tax of RM42.4 million (US$13.86 million) for the previous financial year,” Pung told The Borneo Post.

The confidence in Sabah’s financial services potential is not limited to state institutions, as a number of major foreign banks are now also moving into the market.

Citing its confidence in the ‘rapid economic growth potential of the state’, Standard Chartered Bank opened its first shariah compliant branch in Sabah in February under the name Standard Chartered Saadiq.

It also launched a financial literacy programme called ‘Minda Wang’.

“Islamic banking has been growing twice as fast as conventional banking, owing to the rising customer demand, increasing sophistication of Islamic banking offerings and strong government support.

“The new branch, alongside the activation of Minda Wang, furthers our ongoing strategy to support this growth, while expanding our Islamic banking footprint in East Malaysia and throughout the nation,” said Osman Morad, the managing director and CEO at Standard Chartered Bank Malaysia, at the bank’s opening.

In October 2011, Saudi Arabia’s Al Rajhi Bank – the world’s largest Islamic bank – also opened a branch with an eye on the potential raised by the Sabah Development Corridor initiative, which was estimated to have seen some RM107 billion (US$34.98 billion) in investment since it started four years ago.

Like its state-run and private sector counterparts, Al Rajhi Bank had said it would take aim at providing a wider range of financial services for small and medium-sized enterprises (SMEs), which were expected to become a major engine of economic growth.

In May, SME Corporation Malaysia approved grants and loans totalling RM110.7 million (US$36.19 million) to help SMEs, while in August, talks were held in Sabah as part of an initiative to engage SMEs, business organisations and banks.

Officials told local media that the dialogue would introduce a spectrum of financing options available for SMEs under a nationwide SME masterplan.

The focus on encouraging a symbiotic relationship between small businesses and financial services firms to encourage growth was also apparent in the state’s establishment in February of an SME village.

Under plans for Malaysia to achieve high-income nation status, Sabah is projected to have a per-capita income of around RM32,400 (US$10,591) and achieve a gross national income of RM110 billion (US$35.96 billion) by 2020.

As part of the initiative, SMEs’ contribution to nationwide gross domestic product (GDP) is expected to grow from 33 per cent in 2011 to 40 per cent by 2020.

(Berneo Post Online / 07 Oct 2012)

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Islamic banking industry has bright in future in the UAE

The Islamic banking sector has a bright future in the UAE as it has been playing a major role in financing infrastructure projects, residential properties and corporate expansion, a top official of Noor Islamic Bank said.

The Islamic lender, which was established with a vision to be recognised as the financial icon from Dubai, is developing its online and mobile banking products and services to expand its reach to the customers. The bank is all set to launch its latest product – A Bank in Your Hand — at Gitex Technology Week next week.

“Islamic financial instruments have the potential to become a key funding source for the nation’s infrastructure needs,” Hussain Al Qemzi, group chief executive officer of Noor Investment Group and CEO of Noor Islamic Bank, told Khaleej Times in an interview ahead of the World Islamic Retail Banking Conference, starting from October 9.

Noor Islamic Bank is a full-service bank delivering the broadest range of products for its customers, with an emphasis on unique and personalised services. It has branches in Abu Dhabi, Dubai and Sharjah, and has a representative office in Tunisia. The bank’s mission is to be ranked among the top 100 most innovative companies in the world by 2020.

“I believe prospects for Islamic banking in the UAE are bright. The UAE Islamic banks account for around one-fifth of all banking assets in the country and 30 per cent of the global Islamic banking industry,” Al Qemzi said.
He said the UAE Islamic banks play a major role in financing infrastructure projects, residential properties and corporate expansion. “This will continue as the country’s economy maintains its steady growth, thanks to the influx of petrodollars, resulting from high oil prices.”

“Infrastructure financing, in particular, represents a tremendous opportunity for Islamic finance. At a time when the conventional banks are offering fewer and shorter loans, the UAE government and companies are increasingly turning to other options for finance,” he added.

Al Qemzi, a seasoned banker with over 28 years of experience working with the leadi
ng financial institutions in the UAE, is an insightful leader with proven experience of incubating, leading and managing strategic ventures and business transformation initiatives. During his tenure as CEO, Noor Islamic Bank has received 19 prestigious industry awards. Al Qemzi was also awarded the prestigious 2010 ‘CEO of the Year Award’ in the Islamic banking category at the CEO Middle East Awards.

About the outlook of banking sector in second half, Al Qemzi said the UAE banks are in a much better position today, but some challenges remain around credit growth and provisioning for legacy issues linked to overexposure to corporates and government entities.

“I am optimistic for the future. While uncertainties about the health of the global economy remain, the UAE banks are in a much better position today, than they were in 2008. The UAE banks are benefitting from improving liquidity, with higher deposits helping to push down the loan-to-deposit ratio below the 100 per cent for the first time since mid-2011.”

“Profits are holding up, assets are building, but challenges remain around credit growth and provisioning for legacy issues linked to over-exposure to corporates and government entities,” he added.

To a question about the bank’s profit and revenue growth in 2012, he said: “This year will be our first full year of sustained profitability, in line with our five year forecast when we launched in 2008.”

In reply to a question regarding the opening of more branches, he said Noor Islamic Bank is present in Abu Dhabi, Dubai and Sharjah. “There are no plans to open more branches at this time. Instead, we will focus on developing our online and mobile banking products and services, the latest of which, ‘A Bank in Your Hand’ we will be launching at Gitex Technology Week, later this month.”

In reply to a question about the bank’s Shariah-compliant services, he said Noor Islamic Bank is delivering the broadest range of Shariah-compliant products to its customers, with an emphasis on unique and personalised services.

“Noor Islamic Bank’s products and services are governed by a Shariah board, comprising leading Islamic scholars with extensive experience and expertise in legal, financial and banking-related matters.”

About the bank’s growth strategy, he said the bank is continuing to develop its retail offerings, with a strong focus on enhancing our customers’ online and mobile banking experience. “Our growth strategy is one of prudent growth, as we seek to extend the reach of our corporate advisory, capital market and structuring capabilities. At the same time, we continue to seek opportunities in international markets as cross-border investment opportunities emerge,” he said.
Elaborating his point, he said some investment opportunities emerge in Turkey and Southeast Asia. “In Turkey, we have closed Islamic mandates valued at nearly $3 billion over the past three years, the latest of which is a $450 million facility for Al Baraka Turk Bank, the largest Islamic finance deal in the history of Islamic banking in Turkey. In Southeast Asia, we believe the growing regional economies will provide significant opportunities to expand our cross-border business,” he said.

“We are keen to build relationships and cooperate with other banks on cross border deals. We believe this route offers us greater growth opportunities than establishing a physical presence in markets outside the UAE,” Al Qemzi concluded.

(Khaleej Times / 02 Oct 2012)

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Islamic finance seen through the microscope

In my experience conferences are substantially networking events, a break from the office, perhaps an opportunity to travel, socialise — and eat richly.
It might then be a way of drumming up business; the undercurrent is all about marketing. Whether very much is learned in terms of the nominal subject matter of the gathering is sometimes questionable.
At the same time, guests from international officialdom may offer a few words, maybe drop tidbits to reporters, and journalists will have all their paraphernalia at the ready in a strangely routine kind of artificial excitement.
From a genuinely informative viewpoint, as opposed to media scrum, it might be only moderately satisfying.
Yet last week I attended an Islamic finance conference in the UK (accompanied by my own modest awareness of this field). The difference was that it was driven by academics rather than bankers and financiers, and the results of that distinction was startling.
Nearly thirty papers were presented among a relatively limited group of delegates from around the world at the JEBO Islamic Finance Conference, organised by Aston University, in association with Durham Business School.
Confluence of ideas
The relative intimacy of the setting allowed for a productive confluence of ideas. Each paper was explained by the author, then discussed and given a critique, often as much on the econometric aspects as the findings themselves.
As might be expected, some of the topics were very narrow, bordering on obscure, while others were of much greater relevance and resonance as to the real world.
For instance, a submission by Laurent Gheerart of the Universite Libre de Bruxelles was a study which found that the presence of a higher degree of Islamic banking promotes a higher level of financial sector development in terms of private credit as a proportion of GDP, and sizably so. The inference was that the relationship between Islamic and conventional finance is one of complementarity rather than rivalry.
Marwa Al Nahass of Lancaster University had investigated whether Islamic, and indeed conventional, banks had managed their income, and capital ratios, in tandem with loan loss provisioning, which should be a matter of interest to regulators. In the hinterland of that review was the idea that existing loan loss modelling had contributed to the credit crunch and needs revision.
Equally technical in its approach but particularly notable to investors was the paper offered by Jawadi Fredi of the University of Evry Val d’Essonne & Amiens. His analysis affirmed that investing in conventional stocks had been the more profitable in the pre-crisis years of recent times, but doing so in Islamic indices had been safer since then and better-performing overall. What to draw from that was a matter of debate.
Other presentations covered issues of banking performance and efficiency, bond ratings, derivatives, corporate governance, including board structure, mutual funds, the effects of political uncertainty on regional stock markets, and even an examination of the relevance of interpretations of Sharia to the development process in the Muslim world.
So it was a myriad concoction, as conferences tend to be.
In fact, what could be taken away overall related as much to manner as to content.
On the one hand, the determined detachment of the speakers from promoting ideas beyond what rigorous application of the data appeared to say was impressive. Whether there were agendas to advance favoured ideas was fairly well hidden. The dialogues seemed scrupulously devoted to the robustness of scientific technique rather than resulting message.
Reality checks
On the other, that very separation — particularly of the quantitative from the qualitative, of the apparently assumed superiority of data over supposition, over intuition and prior knowledge — might limit the impact or credibility of the deductions.
However, I would say that more was learned on the nominated topics than at the many industry events previously visited.
Certainly, in terms of developing understanding, bankers and academics probably need to talk more with each other on some kind of middle ground.
After all, as a generalisation, the conventional banking sector has arguably made a serious mess of things (and Islamic institutions were significantly exposed too in terms of portfolio management and risk), whereas the virtues of dispassionate research probably need to be moderated by reality checks to make its messages heard.
(Gulfnews.Com / 06 Oct 2012)

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