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Tuesday, 19 February 2013

Sukuk market to grow 30% in 2013

JEDDAH – The sukuk (Islamic bond) market is expected to grow by around 30 percent this year, buoyed by sovereign sukuk that will continue to dominate, supported by emerging of new countries that issue sukuk, Kuwait Finance House (KFH) said in a recent report.

Sukuk issuance will grow this year by 20-30 percent after the momentum witnessed by the issuance process last year that was worth $131 billion, the report, compiled by the KFH-Research, showed.

The share of the Middle East of issuance in 2012 increased; especially in Saudi Arabia and UAE, it said, noting that the returns on sukuk increased during the same year, compared to returns in 2011.

Sukuk remain a major facet of the Islamic finance industry in 2013. The Islamic capital market now stands aflush with more than $230 billion in outstanding sukuk papers, having developed as a crucial platform for international liquidity and fund raising activities, it said.

Renewed struggles in Europe have hampered growth in advanced economies, leading to capital flows into emerging markets and alternative investments.

Despite this, economic growth in 2012 is estimated to have remained subdued even in emerging economies on the back of lower global demand for goods and services. This sustained sentiment has kept investors in the bond markets in a year that has seen benchmark 10-year US Treasury yields lose 9.3 percent, it said.

In 2012, a total of $131.2 billion worth of sukuk papers were recorded from the primary market, representing a y-o-y increase of 54.2 percent. The amount dwarfs that of previous years and even represents three times the size of the primary sukuk market pre the global financial crisis. Since 2008, total yearly issuances have grown at a compound annual growth rate of 67.4 percent.

Sovereign issuers led the market share in 2012 despite a record amount of corporate sukuk placed during the year. Total issuances from sovereign entities throughout 2012 reached $80.2 billion as compared to $58.9 billion in 2011, representing a 36.0 percent y-o-y increase. Despite the dominant market share of 61.1 percent, sovereign papers were overshadowed by significant growth in both corporate and government-related entities which grew by 92.4 percent and 103.0 percent to $36.5 billion and $14.5 billion, respectively, the report indicated.

By region, issuances from Central and East Asia continued their growth momentum, climbing by 60.1 percent y-o-y to $104.8 billion during 2012. This was led by Indonesia (+131.1 percent y-o-y, $6.0 billion) and Malaysia (+59.4 percent y-o-y, $97.1 billion).

Meanwhile, issuances from the Middle East and North Africa also increased by 34.4 percent y-o-y to $26.3 billion, mainly led by the 278.2 percent y-o-y jump in issuances from Saudi Arabia to $10.5 billion and the 49.3 percent y-o-y increase in issuances from the UAE to $6.1 billion.

Within the corporate sukuk market, $26.8 billion worth of papers or 73.5 percent of total issuances were issued in Malaysia, while $4.2 billion (11.5 percent) was issued in the UAE and $3.4 billion (9.3 percent) was issued in Saudi Arabia, the report added.

(Saudi Gazette / 17 Feb 2013)

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Islamic banking facing regulatory challenges

LAHORE - Islamic insurance (Takaful) is flourishing all around the world alongside Islamic Banking. Its global market size has reached 12 billion dollar whereas the number of Islamic Takaful institutions has exceeded to 350.
Banking industry experts said that though Takaful industry is prospering in the recent times; however it’s also facing certain challenges which include: issues regarding re-Takaful, regulatory challenges, competition and lack of human capital. These issues can be resolved by employing effective strategies and through proper planning. Unfortunately, there is not a single institution in the world which can provide guidance to Takaful industry on the above mentioned issues. Hence, to overcome all these challenges and issues of Takaful industry, Al Huda CIBE established a Takaful Consultancy Wing. Its principle consultant will be Captain Jamil Akhtar Khan who is a renowned and notable personality of Takaful industry. He has the expertise on Takaful regulatory issues, establishment of Takaful companies and other related departments.
Captain Jamil Akhtar Khan said that Takaful Consultancy Wing will be an independent institution which will provide its services to other organizations for the establishment of new Takaful companies, research, advisory, training, re-Takaful, Shariah guidance and other Takaful related matters. It will be a distinguished institution because of its services. Justice (r) Khalil Ur Rehman said that Takaful industry was in need of such institution from a long time, so that services related to Takaful industry can be provided internationally in an efficacious way. He also said that Islamic banking and Takaful are interdependent; hence in order to strength the Islamic banking industry, Takaful industry has to be strengthened as well.
He was confident that Al Huda will play a vital role in this regard.

(The Nation / 19 Feb 2013)

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Islamic banks ‘should focus more on quality growth’

Mergers and acquisitions, quality of talents and embracing technology are key areas for Islamic banks to move forward, in addition to focusing more on quality rather than percentage of growth.
“There are 13 banks that are big with more than US$1 billion [RM3.09 billion] each in equity whereas the rest of the industry is small, lacking scale,” Ernst & Young (E&Y) partner, Islamic banking excellence centre, Ashar Nazim told The Malaysian Reserve last week.
“There are too many banks out there. Therefore, consolidations and mergers is the way to go in moving forward,” said Ashar. “The industry is still young and it has learnt from its mistakes. It is emerging from a state of self-denial after the international crisis. There is a long way to go.”
Ashar added that Malaysian banks are ahead of the pack in terms of the scale some of them have achieved.
Commenting on talents, Ashar said: “Most Islamic banks are led by bankers that were previously conventional bankers and some have reached their retirement age. This industry is a young industry that needs entrepreneurial fresh blood to drive it forward.”
He added that the use of technology is sub-optimal because no information technology vendors out there are truly syariah-compliant and have been vetted or certified by the global standard setting board.
“They are mostly conventional core banking solutions which have been adapted for Islamic banks. That is a major limiting factor for Islamic banks and that drives their operating costs much higher than conventional,” Ashar said.
Regarding quality of growth, Ashar said: “Initially, it used to be important because it was a young industry. It was trying to establish itself and to prove a point that it is not a fad and is here to stay.
“Now, whether the growth rate of 19% or 20% or 22% is less relevant. What is more relevant now is the quality of growth.”According to E&Y’s World Islamic Banking Competitiveness Report 2013, global Islamic banking assets had an average annual growth of 19% over the last four years and are set to cross US$1.8 trillion (RM5.56 trillion) in 2013, up from the US$1.3 trillion of assets held in 2011.
Synthetic instruments
The report added that the top four market accounted for 84% of industry assets and Islamic banking grew 50% faster than the overall banking sector.
Nonetheless, the report said that the average return on equity at 12% was lower than the 15% registered for conventional banking.
“Islamic banks are 20% to 25% less profitable than conventional banks, but the more worrying factor is that this is because of all factors that are controllable,” said Ashar.
“Being syariah-compliant should mean that you are more profitable because you are better linked to the real economy and you are into socially responsible businesses,” he added.
Ashar said that for Islamic banks in Malaysia to grow from its current US$120 billion-US$130 billion industry to a 40% market share of the industry by 2020, banks have to “optimise the balance sheet to be more capital friendly”.
He added that Islamic banks have to understand the customers better because as the conventional banks “are bigger, well entrenched, understand their customers better and as everyone agrees, they have a better service culture.
That is where Islamic banks slacked. “Islamic banks have so far failed to penetrate the mainstream segments to its fullest potential.”
Ashar said Islamic banks should look at their retail banking business and how they acquire and serve their customers.
He added that many customers of Islamic banks are deposit bank customers and have not taken the financing part either because of lack of awareness or a number of other reasons.
“Clearly there is an opportunity to increase penetration with existing customers,” Ashar said.
Commenting on the new Islamic Financial Services Act 2012 which will statutorily enforce management of syariah-non-compliance risk and requires Islamic financial institutions to ensure at all times that their aim, operation, business, affairs and activities are in compliance with syariah, Ashar said: “It will help the international industry move towards harmonisation because the gist of the act is that Islamic banking business should be more syariah driven, syariah-based instead of just having synthetic instruments.”
According to Bank Negara Malaysia’s website, there are 16 Islamic banks operating in Malaysia, 10 locally-owned with the remaining six that are foreign-owned.

(F.M.T News / 18 Feb 2013)

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