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Wednesday, 31 October 2012

StanChart eyes UAE, Bahrain for Islamic banking growth

Standard Chartered, which makes most of its revenue from Asia, is expanding its retail Islamic banking business in the UAE and Bahrain, two markets HSBC Holdings is withdrawing from.

Standard Chartered Saadiq, the lender’s Islamic banking unit, has started to offer Shariah-compliant financing to small and medium-sized companies in Bahrain, according to Sultan Ali Haider, Dubai-based general manager for consumer Islamic banking. The bank is also developing its businesses in the UAE, the second-biggest Arab economy, he said in an e-mailed response to questions on Monday.

“Our strategy is to continue to cater to this growing demand of the consumers for Shariah-compliant banking services,” Haider said.

Regional and global banks are stepping up efforts to seize a slice of an industry whose financial assets may double to $3tn by 2015, according to Standard & Poor’s. The “tough competition” prompted HSBC to announce this month that it would stop offering Shariah-compliant retail products in the UAE, Bahrain, Bangladesh, Singapore, the UK and Mauritius, markets that make up 17% of its Islamic business revenue.

The withdrawal was from “smaller markets where we don’t have sufficient scale,” Patrick Humphris, an HSBC spokesman, said in a phone interview on October 4. 

Other providers see potential for growth: Mashreq Al Islami seeks to double its contribution to Mashreqbank’s profit to as much as 20% in three years, Moinuddin Malim, chief executive officer of the Dubai- based unit, said in an interview October 9.

Islamic banking expanded faster than the non-Shariah compliant industry in Malaysia, Indonesia, Turkey, Saudi Arabia, the UAE and Qatar between 2006 and 2010, according to a World Bank report released in March. In the UAE, the industry grew 27% in the period, behind Qatar and Turkey, the data show.

“Islamic banking is one of the fastest-growing finance businesses globally,” recording compound annual growth rates of 15% to 20% “in recent years,” according to Jonathan Tyce, a senior banking analyst at Bloomberg Industries. “The mainstay of Islamic banking assets is centred around the Arabian Gulf states, the Middle East and Malaysia,” he said in a report this month.

Assets in the six-nation Gulf Co-operation Council stood at about $411bn in 2011, more than twice the size in Asia, according to a report presented at the Global Islamic Finance Forum in Kuala Lumpur last month.

As the industry matures, Standard Chartered has “observed that more customers are now finding it easy to adapt to Islamic banking products and services,” Haider said. “Saudi Arabia, Kuwait, Qatar and the UAE are all big markets for Shariah- compliant banking, Saudi being the largest.

Saudi Arabia, the largest Arab economy, is one of three markets where HSBC said it would focus its Islamic finance offerings, the other two being Indonesia and Malaysia. The London-based bank would also continue to offer sukuk underwriting services through operations in Malaysia and Saudi Arabia, where a government spending programme of more than $500bn to upgrade infrastructure and create jobs is spurring record debt sales.

HSBC helped manage $8.5bn in GCC sukuk sales, or about 44% of $19.2bn record offerings this year, according to data compiled by Bloomberg. That has positioned the London-based lender to maintain its rank as the region’s top sukuk underwriter for a fourth year, the data show.

The bank, which owns a 40% stake in Riyadh-based Saudi British Bank, acted as the sole underwriter of the 15bn Saudi riyal ($4bn) January sale by the state-run General Authority for Civil Aviation, the kingdom’s biggest sukuk offering for 2012.

Standard Chartered helped borrowers raise $2bn in Islamic debt in the region this year, giving it a market share of about 11%, data compiled by Bloomberg show. The bank has requested a full Saudi banking licence and currently operates a capital markets office in the kingdom.

The bank has started to offer Shariah-compliant services to its private banking clients to boost its share of a fast-growing market, Haider said. The products include deposit accounts, property financing, equities, Islamic bonds or sukuk and mutual funds, it said in a statement on June 25.

“The trend points to a promising future,” Haider said.

Lender sees wider Iran settlement by year end

Standard Chartered said it was aiming for a wider year-end settlement with US authorities investigating its Iran-linked transactions. 

The Asia-focused bank, on track for a tenth straight year of record earnings, agreed in August to pay New York’s banking regulator $340mn to settle allegations it hid some $250bn worth of transactions with Iran. 

But other probes, including a criminal investigation, are still going on. 

“We’re in active and constructive dialogue with all of the other agencies. We hope to get that finished and completed by the year end but it’s not wholly in our power to do that,” finance director Richard Meddings said.

Standard Chartered, which is negotiating with the Manhattan District Attorney, the US Treasury Department, the Justice Department and the New York Federal Reserve, said last month it could not predict the outcome or quantify potential liabilities.

The bank said yesterday its operating profit grew by a mid-single digit rate in the first nine months of the year. 

Earnings would have risen by at least 10% but for the settlement with New York regulators who threatened to strip the bank of its state licence over its Iranian deals.

(Gulf Times / 30 Oct 2012)
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Abu Dhabi Islamic Bank (ADIB) plans capital boost through sukuk sale

Abu Dhabi Islamic Bank is planning to boost its capital through the sale of a Shariah-compliant debt instrument, in what would be a rare method by a regional lender to boost its core capital ratios. 

ADIB, the largest Shariah-compliant lender by market value in Abu Dhabi, will start investor meetings today ahead of a potential Islamic bond, or sukuk, sale, a statement from the arranging banks said yesterday. 

The sukuk sale is likely to be benchmark-sized, a source at one of the arranging banks said. Benchmark size bonds are typically $500mn or more in size. 

The bank has mandated HSBC Holdings, Morgan Stanley, National Bank of Abu Dhabi, Standard Chartered and itself to arrange the roadshows, with a potential sale of a tier one perpetual dollar-denominated sukuk to follow, subject to market conditions. 

Tier one capital is a key measure of a bank’s financial strength. ADIB had a tier one ratio of 13.45% at the end of June 2012, and said in its second quarter results that it aims to improve this to above 15% in the near term. 

The public sale of a debt instrument to raise tier one capital is extremely rare in the Middle East. Lenders including Commercialbank (Qatar), Burgan Bank and Saudi Hollandi Bank have sold tier two instruments in recent years. 

ADIB issued a $2bn tier one sukuk instrument in 2009 to the Abu Dhabi government as part of a wider scheme by the authorities to bolster the country’s banking system in response to the global financial crisis. 

Shareholders approved the issuance of tier one sukuk worth up to $2bn, the bank said in a bourse filing last week

(Gulf Times / 30 Oct 2012)

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Malaysia: TH Plantations, pilgrim's fund set up 1 billion ringgit sukuk programme

TH Plantations said in statement on Tuesday that Hong Leong Islamic Bank and RHB Investment Bank were appointed as the joint principal advisers, joint lead arrangers and joint lead Managers for this sukuk murabahah programme.

The sukuk will be issued to the pilgrim's fund or Lembaga Tabung, making it non tradable and non transferable, TH Plantations said.

TH Plantations issued a first tranche of 200 million ringgit under the programme on Tuesday, which has a tenure of 15 years and will mature on October 2027. The bonds have a profit rate of 6.6 percent yearly, paid every six months.
(Reuters / 30 Oct 2012)
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IFSB to revise capital adequacy standard for Islamic banks

The IFSB sets global guidelines for Islamic finance, although national financial regulators have the final say on how much capital banks must maintain and in what form.

The Islamic body released its original guidelines on capital adequacy in December 2005, based on Basel II standards which regulators were then applying around the world. Since then, global regulators have agreed on stricter Basel III standards which will be phased in over the next several years.

IFSB spokeswoman Rose Halim told Reuters that her institution's new guidelines would address the issue of which Islamic instruments could be classified as bank capital.

"The IFSB is revising its capital adequacy standard, and in this context we are elaborating the issue of component of capital," she said in an email.

"For issuing sukuk as part of bank capital we have proposed different types of sukuk," Halim said, adding that sharia advisors where still discussing details.


Because sukuk or Islamic bonds are based on real assets rather than pure debt, as conventional bonds are, some analysts and bankers believe sukuk could play a major role in helping banks around the world meet Basel III's minimum capital ratios.

It will be up to national regulators, taking into account the advice of the IFSB, to determine which sukuk structures can be classified as capital and to what extent.

Some banks in the Gulf are already issuing sukuk in the expectation that the instruments will count as capital. Abu Dhabi Islamic Bank plans to boost its capital through the sale of a sharia-compliant debt instrument, and will start investor meetings on Wednesday, a statement from the arranging banks said on Tuesday.

The sukuk sale is likely to be benchmark-sized, a source at one of the arrangers said; benchmark bonds are typically $500 million or more in size.

Last year Saudi Arabia-based Bank Al Jazira strengthened its capital base by issuing a 10-year, 1 billion riyal ($265 million) sukuk, which it said would be classified as Tier 2 capital.

A draft of the IFSB's new guidelines will be issued in the first week of November for public consultation, said Zahid ur Rehman Khokher, a member of the IFSB's technical and research secretariat, the team that worked on the project.
(Reuters / 31 Oct 2012)
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