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Thursday, 24 April 2014

Pakistan's MCB drops plans to buy Islamic bank, to set up own unit

Pakistan's MCB Bank Ltd will set up a wholly owned Islamic banking subsidiary while dropping plans to take a stake in Islamic lender Burj Bank, according to a filing with the Karachi stock exchange.
Last month, MCB started due diligence on taking a 55 percent stake in unlisted Burj, which held assets worth 53.3 billion rupees ($547 million) as of December, but it said it would not proceed for commercial reasons.
Those plans would have included an additional investment by the private-sector arm of Jeddah-based Islamic Development Bank , which already holds a 33.9 percent stake in Burj.
Bahrain's Bank Alkhair is its largest shareholder, with a 37.9 percent stake in Burj, which it has classified as held-for-sale since June 2012.
The move comes amid increased activity in Pakistan's Islamic banking sector, with regulators stepping up development efforts and lenders expanding operations in the world's second-most populous Muslim nation.
Burj Bank is the smallest of five full-fledged Islamic banks in Pakistan with a network of 75 branches, while MCB operates the country's sixth-largest Islamic window with 28 branches, which it established in 2003.
MCB had earlier said it would spin off its Islamic window into a separate subsidiary with 10 billion rupees in paid-up capital, using its existing Islamic banking branches to form the new entity.

As of December, Islamic banks held a 9.6 percent share of total banking assets in Pakistan, compared with around 25 percent in the Gulf Arab region.
(Reuters / 22 April 2014)
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Malaysia: RAM Ratings assigns ratings to Public Islamic's RM5b Sukuk

KUALA LUMPUR: RAM Rating Services Bhd has assigned its ratings to Public Islamic Bank Bhd's proposal to issue up to RM5bil Sukuk Murabahah.

It said on Wednesday it had assigned AAA/Stable and AA1/Stable ratings to the senior Sukuk and subordinated Sukuk to be issued under the programme.
It also reaffirmed Public Islamic's AAA/Stable/P1 financial institution ratings.
"The financial institution ratings reflect Public Islamic's strategic importance as the Islamic banking arm of its parent, Public Bank Bhd (the group, rated AAA/Stable/P1 by RAM)," it said.
RAM Ratings pointed out the bank's operations were highly integrated with those of its parent, leveraging on the latter's risk-management systems, branch network, back-room operations and IT infrastructure.
We believe that the group will readily extend support to Public Islamic should the need arise," it said.
The ratings agency said based on the group's prudent credit culture, Public Islamic's asset quality remains robust.
"Although we have observed some loan-quality slippage in its vehicle-financing portfolio, any further deterioration should be contained given the bank's proactive credit-tightening measures back in 2011," it said.
As at end-December 2013, Public Islamic's capitalisation was sound relative to its risk profile, with a common-equity tier-1 capital ratio of 11.7%.
The subordinated Sukuk is Basel III-compliant and will be treated as tier-2 regulatory capital. The subordinated Sukuk has a non-viability loss-absorption feature linked to the occurrence of a non-viability event.
"In line with RAM's rating approach for Basel III tier-2 securities, the subordinated Sukuk is rated 1 notch below Public Islamic's long-term financial institution rating, underlining the lower ranking of these sukuk in the priority of claims upon bankruptcy or liquidation, relative to the Bank's senior unsecured creditors," it said.
(The Star Online / 23 April 2014)
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Islamic Finance Body IIFM Eyes First Sukuk Standard

The Bahrain-based International Islamic Financial Market (IIFM) will develop its first standard contract template for Islamic bonds, and aims to double the number of its standards as early as next year, its chief executive told Reuters.

A standard for leasing-based sukuk will be developed first by the IIFM, a non-profit industry body which creates specifications for Islamic finance contracts, to help harmonize industry practices, said chief executive Ijlal Ahmed Alvi.

“Our aim is to come up with more standards — that is the focus we are trying to push for. We have five standards now and we hope to double that for next year.”

The move comes after a consultation meeting in Dubai this week which identified a need for guidelines covering theijara sukuk structure, a Shariah-compliant sale and lease-back contract, as a priority.

Alvi said a working group would be established after the IIFM’s board meeting in May, and it would also study other common sukuk structures such as mudarabawakala and musharaka, as well as convertible and exchangeable sukuk.

Sukuk issuance globally reached $117 billion last year from a total of 811 issues, of which 175 where based on the ijara structure, according to data from Zawya, a Thomson Reuters company.

The ijara sukuk standard could be ready by the end of this year at the earliest, although this would depend on the working group’s schedule, Alvi added.

The working group would include representatives from a wide range of Islamic banking institutions including the Jeddah-based Islamic Development Bank (IDB), as well as the International Monetary Fund, he added.

While ijara sukuk are popular among corporate issuers, the absence of standard documentation has spawned different versions which can limit their acceptability among Islamic investors. A general lack of uniformly accepted standards in Islamic finance has slowed global growth of the industry.

The new sukuk standard will seek to address a variety of issues including primary market issuance and the use of special purpose vehicles, Alvi said.

In the past two years, the IIFM has launched standard contract templates for Islamic interbank transactions and profit rate swaps.

It is currently working on standards for cross-currency swaps, foreign exchange forwards and collateralized murabaha, while also consulting on credit support arrangements in Islamic finance contracts, said Alvi.

The IIFM started operations in 2002, founded by the IDB and the central banks and monetary authorities of Bahrain, Brunei, Indonesia, Malaysia and Sudan. Additional members include the State Bank of Pakistan and the Dubai International Financial Center.

(Jakarta Globe / 23 April 2014)
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