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Thursday, 25 October 2012

Sudan: Bank of Khartoum to restart sukuk sales

Bank of Khartoum, Sudan’s oldest bank, plans to start selling Islamic corporate bonds, or sukuk, again as the economic outlook for African country improves in the wake of an oil deal with South Sudan, its general manager said. 

Fadi Salim Faqih told Reuters the Islamic bank, which is around a fifth-owned by Dubai Islamic Bank, expects to post a record profit this year boosted by strong lending and a substantial windfall from the devaluation of the Sudanese pound. 

“A couple of sukuks have been started,” Faqih said in an interview late on Tuesday, saying the bank could realistically issue $100mn in bonds for local companies by early 2013. 
The bank arranged several sukuk issues in 2011, but stopped the sales as Sudan’s deep economic crisis raised the risk of default. 

Deprived of three-quarters of its oil production when South Sudan became independent in July 2011, Sudan has been struggling with a severe downturn and annual inflation of over 40%. 

Last month, the two countries agreed to restart oil exports from the South through northern pipelines and a Sudanese port, giving both ailing economies a much-needed shot in the arm. 
Much of the Sudanese market is dominated by government-linked banks. Western lenders shun the Arab African country because of US trade sanctions in place since 1997, leaving the market to Gulf lenders such as QNB. 

Local companies from the aviation, real estate and hotel industries are among those now showing an interest in issuing Islamic bonds, said Faqih. 

The Bank of Khartoum, which also owns a South Sudan bank, also plans to fund exports such as livestock, cash crops and iron ore as Sudan expands its mining and agricultural production to offset the loss of oil. 

“This year we established a new unit which is specialised in funding exports,” he said. 
It also plans to add 24 new branches to its existing network of 55. 

The bank, a heavyweight on Khartoum’s stock exchange, expects a net profit of more than 200mn pounds (around $35mn) in 2012, up from 63mn pounds last year.

The profit jump for the bank, which has substantial dollar denominated assets, is largely driven by a devaluation of the Sudanese pound and a rise in lending and customer deposits, said Faqih. Its finance book rose to 4.8bn pounds at the end of September, up from 3.6bn pounds at year-end and deposits are up 23% this year, he said.

(Gulf Times / 25 Oct 2012)

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Oman to amend tax legislation for Islamic finance

KPMG are advising the Government on how best to amend the tax legislation to ensure that Islamic financial institutions are not disadvantaged compared with their conventional peers.
"In Islamic finance, the way transactions are entered into is very different. You buy an asset and sell the same (instead of giving a loan and paying interest in conventional finance). If you look at the transaction as it is, the profit may be liable to tax in the first year, which may put the Islamic banks at a disadvantageous position compared to conventional banks,” Ashok Hariharan, Partner and Head of tax for KPMG in Oman, told the Times of Oman.
"As banks are getting ready for launching Islamic banking products, you should make sure that the tax regulations are also equally supportive to deal with this new development in the country, Hariharan added.
Khalid Yousaf, Director of Islamic Finance Advisory Services at KPMG, told the newspaper, "Every time you carry out a transaction in property, you have to pay three per cent (tax). If you do an Islamic mortgage under Ijara, or Morabaha, then the bank has to own the assets so that property first has to transfer to the bank's name.
“The bank then has to transfer it to the client's name, when the repayment is completed. If you compare it to conventional finance, you are paying 3 per cent extra, because it is an Islamic finance transaction and that means the Islamic finance transaction becomes unfavourably treated by the tax authorities.”
According to the report, KPMG is expected to complete the work within six months. However, the legislation process may take longer.
Yousaf is quoted as saying that the regulatory framework for Islamic banks was developed by Ernst & Young on behalf of the Central bank of Oman and the legal framework, which is the civil law, is already exists in the country. The Shari’ah law applies to families, inheritance and other matters and the taxation law needs to be amended now.
 (C.P.I Financial / 24 Oct 2012)

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Egypt’s Savings Vacuum Shows Struggle for Banks: Islamic Finance

Murad Hassan, who owns a stationary shop in Cairo, doesn’t keep his money in a bank, and says expanding Shariah-compliant finance under Egypt’s new Islamic government won’t change his mind.
The 43-year-old father of three rarely has more than $500 in excess cash, which he uses to stock up on school supplies for his store on a street lined with small family businesses in Matariya, a low- to medium-income neighborhood in northeast Cairo. “It’s never a large enough sum to consider doing more with it,” he said in an phone interview Oct. 21.
Hassan isn’t the exception. Nine out of 10 adult Egyptians don’t have a bank account, the Middle East’s lowest ratio apart from Yemen, according to the World Bank. The lack of clients underscores the struggle Islamists face to promote Shariah- compliant financing after last year’s revolt propelled them to power. For Islamic banking to flourish in the majority Muslim nation, President Mohamed Mursi must lift economic growth from 2011’s 19-year low of 1.8 percent, Capital Economics Ltd. said.
Mursi, who became Egypt’s first democratically elected leader in June, is preparing laws to increase the share of Shariah-compliant deposits from 6 percent now, and enable borrowers to sell bonds complying with Islam’s ban on interest.
The plans haven’t yet jolted banks into action. Commercial International Bank Egypt SAE (COMI), the biggest publicly traded lender, is still “testing the waters” on whether to tap Islamic finance, Mohamed El Toukhy, chief executive officer of consumer banking, said in an Oct. 9 interview in Dubai. Only 1 percent of Egyptians with bank accounts have saved money in the past year, the World Bank said in an April report.

Little Savings

“The fact that saving ratios are low and that many Egyptians are poor bodes ill for both Islamic and conventional banks,” Said Hirsh, London-based economist at Capital Economics Ltd., said in an e-mailed response to questions Oct. 22. “This could change if the Egyptian economy were to grow at a faster rate in the future, around 7 percent a year, with more citizens sharing in this growth.”
The last time the economy expanded that fast was in 2008, the same year foreign direct investments rose to more than $13 billion. It will take until 2016 for growth to reach 6.5 percent, according to International Monetary Fund estimates.
The fall of autocratic rulers who long oppressed Islamists has fueled speculation that governments and consumers will turn to Shariah-compliant finance. The ultra-orthodox Nour Party, Egypt’s second-biggest Islamist group after the Muslim Brotherhood, seeks to eventually phase out the current banking system, replacing it with one that bans interest. Global Islamic financial assets will double by 2015 to as much as $3 trillion, Standard and Poor’s said last month.

‘Exaggerated’ Potential

“Let’s not give too much weight to the ravings about Islamic banking in Egypt,” Abdul Hameed Abu Musa, governor of Cairo-based Faisal Islamic Bank of Egypt, said in a phone interview Oct. 22. He dismissed as “exaggerated” estimates by groups such as the Muslim Brotherhood’s Freedom and Justice Party that Islamic deposits and lending may expand six-fold in the next five years.
Only three of the 39 banks operating in the most-populous Arab country are fully Shariah compliant. Real credit growth to private businesses and consumers may shrink 5.9 percent this year and 5.4 percent in 2013, according to HSBC Holdings Plc estimates. That compares with 4.3 percent 2012 growth in Tunisia, where a popular uprising broke out in December 2010 that set off a wave of political unrest across the Middle East.

Deposits Growing

Still, Islamic deposits could almost double to 10 percent of the total by 2017 if the economy recovers, Abu Musa, 70, said. Funds managed by Faisal Islamic soared 16 percent, or about 4 billion Egyptian pounds ($656 million), in the first nine months. Sixty percent of deposits range between 500 pounds to 30,000 pounds in size, he said.
The government is also confident a debut sukuk sale will be well received once a law is passed and the nation secures a $4.8 billion loan from the IMF. Foreign banks have expressed interest to buy as much as $1 billion of the debt, Finance Ministry head of debt management, Samy Khallaf, said by e-mail Oct. 17. Global sukuk sales have surged almost 80 percent to a record $39 billion this year as borrowers benefit from record-low yields.
In the Arab world, only Qatar, Bahrain, as well as Dubai and Ras Al Khaimah in the United Arab Emirates, have sold sovereign dollar-denominated Islamic debt, data compiled by Bloomberg show.

(BloombergBusinessWeek / 24 Oct 2012)

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