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Monday, 10 March 2014

Islamic finance: UK’s maiden sukuk comes over all coy

The UK’s maiden sovereign sukuk issue was announced with considerable fanfare in October, and appears to be making progress. But the UK Treasury is not in a rush, and market participants are beginning to wonder why there is a delay.

 Speaking at the Euromoney Islamic finance forum in London in February, Sajid Javid, MP, the financial secretary to the Treasury and a former Chase Manhattan and Deutsche Bank executive who is very much the public face of the UK government’s Islamic market ambitions, said the sukuk would now take place in the "next financial year" – that is, no earlier than April 5, and potentially not even this year. 

Naturally, a sovereign has to be fairly studious and open in its appointment of advisers, and after review settled on HSBC and Linklaters. But with that done, why the sluggish pace? 

Cautious approach:

 In one sense, Javid is keeping history in mind in the cautious approach. "The market has long made the case for a sovereign sukuk issued by the UK government, and it is something the government has looked at doing in the past," he said. "Due to hurdles, it never quite took off." 

Sajid Javid, MP, the financial secretary to the Treasury and a former Chase Manhattan and Deutsche Bank executive Asked why it is still not under way, he said: "I actually think that, drawing on my own experiences, it’s not been that long. It is the first for the UK, the first sovereign sukuk by any western country, and it is very important that when the UK issues it has looked at everything in fine detail. It would be in no one’s interests if it was rushed unnecessarily and there’s a problem that could have been avoided." 

Javid also confirmed that, for the moment, the UK only intends to issue one sukuk. "We have said this is a one-off issuance, not a long-term programme, and its main purpose is not financing for the government," he said. "It is more to develop the UK as a financial centre."

 This attitude clearly makes some sense, since the £200 million ($334 million) issue, when it comes, will not make the slightest difference to the UK’s national coffers compared with the deep and liquid conventional gilt market. The sukuk, instead, will be a statement: about inclusiveness for the UK’s Muslim community; about London welcoming further investment from the Islamic world; and about the hopes London continues to harbour as a global centre for Islamic finance. There is an alternative view, muttered by bankers and lawyers. Just because the UK doesn’t need sukuk for its funding doesn’t mean it shouldn’t continue to build a curve, they say, and it seems a waste of effort and research to put all this preparation into a one-off. 

After all, the hope is that a UK sovereign issue will prompt other UK enterprises to launch sukuk, priced off whatever level the sovereign issue clears the market at. The more widely established the curve, the greater the opportunity there will be to encourage others to price against it. Back-chat There is also a certain amount of market back-chat about the appointment of HSBC to the advisory mandate so soon after the bank had closed down many of its Islamic finance businesses worldwide – including some of its presence in the UK.

 This objection was levelled at Mohammad Dawood, managing director of global capital financing at HSBC Middle East, by Harris Irfan, managing director of the European Islamic Investment Bank, at the same Islamic conference. Irfan asked: "Why should HSBC be rewarded by the British government with a high-profile Islamic mandate?" 

Dawood responded: "Yes, we have closed down businesses in the UK and in the Middle East," but he countered that HSBC has maintained its presence in the two key Islamic markets of Malaysia and Saudi Arabia. "Our selection was perhaps just a reflection of the experience that has been built up over a number of years. It was a transparent process." Market sniping notwithstanding, there are high hopes for the influence the sukuk could eventually have. "Without a shadow of a doubt, the UK issuance will have the largest impact" of the various non-Muslim jurisdictions believed to be planning a sukuk, said Arsalaan Ahmed, head of capital financing at Barwa Bank. "

The UK has shown all the areas that need to be looked at for a non-OIC [Organization of Islamic Cooperation] sovereign issue, and when it is done, the UK will be a case study on how to do it." He believes the "trickle-down effect will be good for investors", and notes that the fact that most Islamic cross-border contracts are structured under English law should work to the benefit of London as a financial centre.

(Euro Money / 10 March 2014)
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Global Finance names QIB Qatar’s ‘Safest Islamic Bank'

QIB has been recognised as the ‘Safest Islamic bank in Qatar’ in Global Finance’s first-ever list of the “Safest Islamic banks in the GCC” through a rigorous evaluation process that assessed the stability of the region’s banks.

QIB Group CEO Bassel Gamal said, “It’s great to see that all our efforts and achievements in 2013 are being recognised by a trusted financial magazine like Global Finance.

The bank “scored high” for its 2013 credit standing, which was rated (A) by Fitch and (A-) by Standard & Poor’s, he said.

“The overall QIB 2013 financial results were very positive; it has increased business volumes across all market segments, which has a positive impact on QIB’s end of year financial results, solidifying its position as a leading bank in Qatar,” Gamal said. The ranking reflects QIB’s implementation of a “successful risk management policy” that strengthened all prudential ratios and built a strong foundation for future business expansion.

Gamal added that “QIB’s innovation and excellence in risk management meets all the rigorous safety standards and this, together with the bank’s commitment to providing excellence in banking services to all the clients, is what differentiates QIB.”According to Gamal, customer deposits saw a steep rise of 16.7% or QR50.4bn by the end of 2013 compared to QR43.1bn in 2012. “This enabled QIB to effectively support the constant growth of assets,” he stressed.

The “strong operating performance” in 2013 has enabled the bank to pursue a conservative impairment policy by allocating QR360mn towards improving the provision coverage on financial investments and financing activities compared to QR491mn in 2012. Gamal noted that QIB managed to raise the quality of its investment portfolio this year, where non-performing financing assets dropped 0.9% with provision coverage of 94% in 2013 compared to 1.6% with provision coverage of 63% in 2012.

For the first time, this year, Global Finance assessed banks that only offered Islamic products and have been rated by at least two reputable international agencies. A total of 25 Islamic banks currently operate in the Gulf, representing a third of all active commercial banks in the region.

Gamal said this recent accomplishment “is a result of our ongoing commitment to provide a seamless banking experience to our individual and corporate customers while at the same time ensure that we are applying a successful risk management strategy,” Gamal stressed.

(Gulf Times / 08 March 2014)
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