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Wednesday, 30 April 2014

SCA cuts sukuk floor to Dh10m

The UAE’s financial market regulator has set new rules for Islamic and corporate bonds to encourage trading in them, and amended rules on securities lending and borrowing to make it easier for foreign institutions to operate.

The changes are part of plans to introduce at least two new rules covering the stock exchanges every year, in an effort to have the Arab world's second biggest economy upgraded to developed market status in 2018, said Abdullah Salem Al Turifi, chief executive of the Securities and Commodities Authority.

UAE equity markets are expected to see more participation by foreign investors after late May, when international index compiler MSCI will raise the country to emerging market from frontier market status.

"We have a very ambitious plan to be upgraded to developed market within five years. I don't want to be over-optimistic, but this is our target and we are working towards that," Turifi said at a conference on Sunday.

"What is needed is a new set of rules and regulations that are being studied and will be introduced, hopefully two or three every year, including options, futures, depositary receipts, fund administrators, nominee accounts and many others."

The new rules for sukuk spell out standards for their issuance, listing and trading, treating them "as an ownership tool and not a debt one" - a key principle in Islamic finance, which stresses the importance of investors sharing profits and losses.

This is in line with Dubai's drive to develop as an Islamic financial centre, the SCA said in a statement on its website.

The rules ease requirements in some areas; the minimum size of a sukuk listing is now Dh10 million ($2.7 million), down from Dh50 million previously.

But strict requirements are specified in other areas. Sukuk issues must be approved by the Shariah committee of the applicant for listing, or by a Shariah committee accredited by the regulator of the issue. While listed sukuk may be traded outside the market, the trading must follow market procedures.

The new corporate bond rules include a requirement for a joint stock company's general assembly to approve any issuance of bonds.

A change to rules for lending and borrowing securities will facilitate borrowing, the SCA said; if brokerages fail to deliver securities under Delivery versus Payment procedures, they can borrow the securities they need without necessarily having to seek SCA approval. This may reduce the risk of investors' trades not being completed.

The amendment also allows foreign institutions to lend and borrow securities between themselves through direct clearance, which will encourage them to operate in UAE markets, the regulator added.

Turifi said a new framework allowing shares in private joint stock companies to trade on a "second market" of the stock exchanges would be introduced in the third or fourth quarter. It will aim to encourage trade in shares of small and medium-sized enterprises. 

(Emirates News / 30 April 2014)
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UAE: Ethical banking to take over: Abu Dhabi Islamic Bank CEO

UAE: Ethical banking to take over: Abu Dhabi Islamic Bank CEO

The chief executive of Abu Dhabi Islamic Bank (ADIB), the largest Sharia-compliant bank in the United Arab Emirates, believes the banking industry is on the cusp of a historic transformation that will see a convergence between conventional and ethical banking.

"They will come together and they are coming together. Who is doing that to them? The customers on one side, and the regulators on the other side," Tirad Mahmoud told CNBC's "Access: Middle East" in an exclusive interview.

Mahmoud, who argues Islamic banking is only part of a larger move towards ethical banking in the post-crisis world, took over the helm of ADIB in 2008 after a 22-year stint at Citigroup. He says the value proposition of Islamic banks already extends to non-Muslim clients.

Earlier in April, ADIB acquired the retail operations of Barclays in the United Arab Emirates for a price tag of $177 million, giving it access to expatriate customers. The purchase will see 110,000 accounts transferred to Sharia-compliant accounts.

Read More Dubai port operator confident in Europe, UK growth Islamic finance asserts that currency has no intrinsic value and must be directly attributed to an underlying asset. It also prohibits the collection and payment of interest, speculative or derivative instruments, as well as investments in breach of its code of ethics. 

"It's all about ethics and I think that's where the future is going. Can we finance hotels? Yes. Do we finance hotels that sell alcohol and gambling? The answer is no" Mahmoud said.

The global Islamic finance industry is expected to double to $2.6 trillion by 2017, according to a recent report by financial services firm PwC.

Read More Mideast to become world finance center: DIFC chief "We believe it's only a matter of time before it achieves critical mass, as the pool of assets broadens and deepens, and enhances liquidity," Standard & Poor's said in its 2014 Global Islamic Finance Outlook .

It's a niche other banks, including Deutsche Bank, Citi, UBS and Barclays, are tapping into, offering their own Sharia-compliant banking products.

Sovereigns are also following. The Hong Kong government plans to issue up to one billion U.S. dollars' worth of sukuk, or Islamic bonds, in 2014. In October, British Prime Minister David Cameron revealed plans to issue $335 million worth of sukuk.

There is a substantial amount of research emerging about whether Islamic finance offers systemic benefits to the global economy. 

"We have been through the biggest stress test, at the end of 2008. I think we all saw who fell down and who didn't. We do not speculate in derivatives," Mahmoud said.

"Islamic banks by mandate, by doctrine, are tied to the real economy, to real assets."
Sharia-compliance doesn't necessarily make a bank trouble-free, however. In a report on ADIB, Fitch Ratings cited "underlying weak asset quality, exposure to problem financing, sizable loan concentrations and renegotiated loan book, and consequent vulnerability to event risk and potentially high losses." 

Read More Wealthy Islamic banks explore partnerships in the West But the report also noted the "ability and willingness of the UAE federal authorities to support ADIB" if needed due to the lender's "systemic importance."

ADIB has a footing in seven countries including the UAE, and is eyeing Saudi Arabia, Algeria, Turkey, Iraq, Algeria and Iran as strong contenders for future expansion. 

"What we look for is an ecosystem that is good for our business model so a large population base with a large economic base is what retail banks look for. We are predominantly a retail bank," Mahmoud explained. 

Last week, ADIB posted a 20.4 percent increase in first-quarter net profit, driven by higher lending. Its stock is up over 40 percent so far this year, outperforming the benchmark Abu Dhabi Securities Exchange (ADX).

This week on "Access: Middle East": An exclusive interview with Tirad Mahmoud, CEO of Abu Dhabi Islamic Bank (ADIB). Tune in for his take on the interplay between religion and finance, industry trends, and which regions will be driving its growth.
(Access Middle Aest / 30 April 2014)
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