CIMB Australia plans to leverage on sukuk market deals

SYDNEY: CIMB Group Bhd, Malaysia’s second largest lender, hopes to use its expertise in Islamic finance to distinguish itself from the competition when it formally opens its Australian operations this week, company executives said.

That may include bringing Australian companies to the Malaysian sukuk market as issuers for the first time.

“We are very keen to do an Islamic finance transaction as soon as possible, but we also have to be realistic, working on a 12-month time frame,” Michael Forde, head of capital markets at CIMB Australia, said in an interview late last week.

Malaysia’s liquid sukuk market has already attracted interest from international issuers including those from Saudi Arabia, Bahrain, Kazakhstan and Hong Kong. This spurred sukuk issuance to RM153.9bil in the first half of this year, according to Securities Commission data.

“It is an excellent source of new liquidity for issuers from this part of the world, and we want to utilise the competitive advantage we have to bring these Australian issuers to this market,” Forde said.

By 2020, the Malaysian Government aims for the amount of outstanding sukuk to hit RM1.3 trillion.

“Much of this growth is projected to be driven broadly by further internationalisation of the Islamic capital market,” Nik Ramlah Mahmood, deputy chief executive of Malaysia’s Securities Commission, said in a speech in April.

CIMB Group, with assets of RM316bil as of June, includes CIMB Islamic, which is one of the world’s largest arrangers of sukuk.

CIMB expected to officially launch its Australian investment banking franchise on Nov 5, upon completing all regulatory procedures, with over 100 staff in its Sydney and Melbourne offices combined, a company spokesman said.

In April, CIMB acquired most Asian operations of Royal Bank of Scotland (RBS) for RM432mil, including its Australian cash equities, equity capital markets and mergers & acquisition businesses.

The bank said it was able to retain most RBS senior staff. This could help CIMB when it contacts Australian companies to try to interest them in sukuk structures, which unlike many conventional bonds were directly based on income from real assets.

“Australian firms will be very new entrants to this market it will require educating institutions who invest in this market. It is not as straight-forward from an Australian point of view, because you are buying and selling assets, instead of direct borrowing,” Forde said.

(The Star Online / 05 Nov 2012)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
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Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Amana Bank forecasts six-fold growth for Islamic banking in Sri Lanka

Amana Bank, Sri Lanka’s only full-fledged Islamic lender, plans to double its branches by expanding in rural areas, forecasting a six-fold growth in demand.

The company, which started in August 2011, will add five outlets this year to its existing 14 and nine in 2013, Colombo-based chief executive officer Faizal Salieh said in an October 17 interview.

Sri Lankan Islamic banking assets could reach $1.5bn from $250mn now, he added, without specifying a timeframe. Amana posted a net profit of 178mn Sri Lankan rupees ($1.4mn) in the nine months through September and had assets of SLR18bn, according to Salieh.

Amana is targeting unbanked individuals and the small-to-medium sized enterprises that are driving the nation’s growth, Salieh said.

The $59bn economy expanded 8.3% last year, the fastest pace since records began in 1959, as the government boosted spending on roads, ports and power plants following the end of a 26-year civil war in 2009.

“Islamic finance is at an infant stage in Sri Lanka but it’s developing,” Suresh Perera, a tax and regulatory principal with KPMG Sri Lanka in Colombo, said in an interview recently. “There’s demand from the Muslim population involved in trade and business and there’s also interest from non-Muslims.”

Of the country’s 21.5mn people, about 8% are Muslim, compared with a majority of 69% who are Buddhist, according to the CIA World Factbook. In neighboring India, which has no Islamic finance policies, Muslims account for 13% of the 1.2bn population, the world’s third largest.

Five non-Islamic lenders are also offering Shariah-compliant services through booths, according to an e-mailed statement from the department of bank supervision at the central bank.

Amana’s website shows it has branches concentrated across central Sri Lanka from the west to east coasts, including the capital Colombo and the cities of Kandy, Kattankudy and Mawanella. 

Hatton National Bank started its Shariah windows in February to tap the market as about 25% of all businesses in Sri Lanka are owned by Muslims, L A M Hisham, who heads the Islamic finance unit, said in an interview.

“This is an alternative and lucrative way of banking,” Colombo-based Hisham said, adding that the bank’s network of 250 branches helps reach out to Muslim customers. “We are looking for more innovative products to offer.”

There’s been no progress since the government announced in 2010 it would grant Shariah-compliant financial transactions the same tax treatment as non-Islamic products, Amana’s Salieh said.

Hisham said KPMG is leading the lobby to solve those issues, but he doesn’t see them as a hurdle to growth.

Demand for Islamic banking products may not be strong enough for Sri Lanka to develop a regulatory framework as the Muslim population is small, according to Singapore-based consulting company Five Pillars.

“Their many war-torn years may still be a concern before foreign funds consider Islamic finance opportunities in Sri Lanka,” Raj Mohamad, managing director at Five Pillars, said by e-mail. “It still has some years to go before joining the queue to attract Islamic finance monies.”

Drafting new rules would help pave the way for a sale of Shariah-compliant bonds, or sukuk, and provide the nation with an alternative source of financing.

China, India and the Manila- based Asian Development Bank are the biggest donors for infrastructure projects in Sri Lanka. The International Monetary Fund has provided $2.6bn to help the nation rebuild foreign-currency reserves since the end of the civil war.

“We have supported Islamic finance and will be very supportive,” Ajith Nivard Cabraal, governor of the Central Bank of Sri Lanka, said in an interview recently from Colombo. 

“Sukuk and other Shariah-compliant instruments would be a source of funding for projects and beneficial to Sri Lanka,” he said.

Worldwide sales of sukuk, which pay returns on assets to comply with Islam’s ban on interest, almost doubled this year to a record $39.1bn from the same period last year, according to data compiled by Bloomberg.

Average yields on the debt declined six basis points, or 0.06 percentage point, last week to an all-time low of 2.86%, the HSBC/Nasdaq Dubai US Dollar Sukuk Index shows. The difference between the average and the London interbank offered rate, or Libor, narrowed 14 basis points to 181 basis points.

Shariah-compliant notes returned 8.5% in 2012, according to the HSBC/Nasdaq index, while debt in developing markets climbed 16.5%, JPMorgan’s EMBI Global Composite Index shows.

Amana, whose shareholders include Bank Islam Malaysia and Jeddah-based Islamic Development Bank, plans to expand to overseas markets such as India, the Maldives and Mauritius once its domestic business strengthens, Salieh said.

“What would drive the growth of Islamic banking in Sri Lanka is its ability to attract investment from outside such as Middle Eastern and Far Eastern funds,” he added.
Islamic banking assets in Sri Lanka are small relative to those in neighboring Pakistan and Bangladesh, who have the world’s second- and fourth-largest Muslim populations.

Holdings that comply with religious tenets in Pakistan total $6.8bn and $10bn in Bangladesh, according to central bank data. Indonesia, home to the world’s largest Muslim population, has assets of $16.8bn.

Sri Lanka’s economy, which relies on exports of tea, spices and textiles, will probably slow to growth of 6.8% in 2012, as the weaker global outlook hurts demand for its goods, central bank governor Cabraal had said by telephone. That’s still more than the 3.5% pace in 2009. The Asian Development Bank on October 3 estimated the island’s economy will expand 6.5% this year and 7% in 2013.

 “The main opportunity for Islamic finance in Sri Lanka is growth in the Muslim community,” Sanjeewa Fernando, an analyst at CT Smith Stockbrokers in Colombo, said by e-mail. “Well-organised marketing could be seen as a strategy to overcome challenges such as a lack of awareness.

(Gulf Times / 05 Nov 2012)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com