Indonesia’s gain in Islamic banking

Indonesia is drawing interest from Middle-Eastern banks seeking to tap the world’s biggest pool of Shariah-compliant investors as some Islamic lenders wind down or close operations in Malaysia and Singapore. Emirates NBD PJSC wants to invest at least US$300 million (RM1.32 billion) in a new Shariah lender or acquire a stake in an existing one, Dhani Gunawan Idat at Indonesia’s financial regulator said. That’s a vote of confidence for Southeast Asia’s largest economy, which is also bidding to host the regional infrastructure unit of Saudi Arabia-based Islamic Development Bank that’s due to begin operations in 2016.

The investments would be a boost for Indonesia in its ambition to become an Asian hub in the US$2 trillion industry. Emirates NBD’s plan comes as Kuwait Finance House prepares to close its Islamic operations in Malaysia, while Bahrain’s Elaf Bank BSC has already done so. DBS Group Holdings Ltd is winding down its Singapore arm catering to Muslims, having said this month it was “unable to achieve economies of scale”. 

“Islamic banking elsewhere is starting to reach saturation point,” Dhani, director of Islamic banking research, regulation and licensing at the Financial Services Authority, said. “This investment will bring in fresh funds as well as Middle East expertise in infrastructure investment, which the economy needs.” Investment from the Middle East would be timely as Indonesia’s Shariah-compliant banking assets have shrunk 18% in 2015 from a year earlier amid the global financial turmoil. They stood at 201 trillion rupiah (RM60.3 billion) in May, compared with Malaysia’s RM523 billion, central bank data show. Indonesia offered the highest profitability among nine major Islamic banking markets tracked by Ernst & Young LLP, with a return-on-equity of 15%, according to the company’s 2014-15 competitiveness report. 

That compared with 10% in both Malaysia and the United Arab Emirates, 0.7% in Bahrain and 7.4% in Kuwait, the research firm said. While Indonesia limits foreign ownership in the nation’s lenders to 40% under legislation introduced in 2013, it’s seeking to consolidate the banking industry. In that vein, the FSA will allow an investor to take a bigger stake as long as the buyer merges the two entities. Emirates NBD, Dubai’s largest lender, was advised to open a new Islamic bank in the Southeast Asian nation to sidestep the ruling, Dhani said. A spokesman for Emirates NBD, who asked not to be identified, declined to comment on the Indonesia plan. “Indonesia has some resistance towards foreign banks coming into the market,” said Megat Hizaini Hassan, head of the Islamic finance practice at law firm Lee Hishammuddin Allen & Gledhill in Kuala Lumpur. “The perception of some in Indonesia is that foreign banks are trying to gobble up the business.”

 Malayan Banking Bhd in Kuala Lumpur bought out PT Bank Internasional Indonesia in 2008 before the investment cap was brought in, and then set up PT Bank Maybank Syariah Indonesia in 2010. Malaysia’s CIMB Group Holdings Ltd and Singapore’s Oversea-Chinese Banking Corp entered the local market in 2002 and 2008, respectively, and now offer Shariah-compliant products via PT Bank CIMB Niaga Syariah and PT Bank OCBC NISP. The Islamic Development Bank, whose largest shareholders are Saudi Arabia, Libya, Iran and Nigeria, may choose Indonesia as the base for its Islamic Investment Infrastructure Bank, Finance Minister Bambang Brodjonegoro said in April. The government is approaching “key countries,” especially those in the Middle East, to earn the right to host the IDB, he said. 

The multilateral lender currently owns 32.7% of PT Bank Muamalat Indonesia, the country’s second-largest Shariah-compliant bank by branches. Singapore’s DBS Holdings abandoned its plan to buy conventional lender PT Bank Danamon Indonesia for US$6.5 billion in 2013 due to the new ownership rule. China Construction Bank and South Korea’s Shinhan Bank are currently seeking two acquisition targets to merge. “The Indonesian Islamic banking market has all the ingredients to achieve similar, if not more success” than its counterparts, said Alhami Abdan, head of international finance and capital market at Kuala Lumpur-based OCBC Al-Amin Bank Bhd.

(The Malaysian Insider  29 September 2015)

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Islamic Finance market set to reach $3.25 trillion by 2020

Dubai: World Islamic finance market is set to almost double by 2020 from the current $1.81 trillion to $3.25 trillion, led by banking and Takaful assets, a study has revealed.

Commercial banking contributes to about $1.34 trillion, while $33.4 billion is contributed by takaful insurance, while sukuks contribute to about $295 billion of the world Islamic Finance market.

“It is growing at about 10 per cent per annum, with the significant concentration of wealth in Islamic banking,” said Mustafa Adel, Acting Head of Islamic Finance at Thomson Reuters, adding commercial banking assets is projected to reach $2.6 trillion by 2020.

The growth has been fuelled by banking and Takaful assets, which have grown 12 per cent and 10 per cent respectively, while sukuk and funds witnessed modest growth of 6 per cent and 7 per cent respectively.

Various countries in the Islamic finance space are very sensitive to issues like interest rates and falling oil prices, and experts reckon this could have strong implications for the emerging economies.

“The chilling effect of a toxic trifecta of macro economic risk-anaemic real sector growth, lower capital inflows, and worsening domestic finances sparked by expected US interest rates rises, would combine to create strong downward pressure on emerging economies,” stated the report, titled ‘State of the Global Islamic Economy 2015/16’.

The continued presence of significant macroeconomic and geopolitical hazards do not augur well for Islamic Finance sector. Economically many countries like Indonesia and Turkey remain fairly exposed to this damaging trifecta of low real sector growth, reduced capital inflows and impact of rising rates in the US.

As far as the falling oil prices are concerned, the situation presents a broader dilemma for various Islamic countries, on how they would maintain their long term public spending without impacting its fiscal sustainability.

Dubai’s competencies:

“With the Islamic economy, we are utilising Dubai competencies in general, as it is a well developed trade hub, it has well developed physical and regulatory infrastructure,” said Abdulla Mohammad Al Awar, chief executive of Dubai Islamic Economy Development Centre.

“Our concentration is on creating synergies within sectors, like for example finance is used to fuel growth in Halal, tourism, etc, and that’s the ultimate goal,” he added.

But with this comes many challenges, experts said.

“Companies are not able to tap the global Muslim market because standards and regulations vary significantly. That obviously is a challenge, but there is a huge opportunity as well that exist within that. Countries in the Asean, GCC region is looking to developed a single standardised structure, so with that companies would be able to achieve the economies of scale as opposed to global chains,” Adel said.

(Gulf News Economy / 29 September 2015)

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Indonesia prays for Islamic banking boom

JAKARTA – Indonesian teacher Nina Ramadhaniah hopes for "blessings from Allah" by opening a Sharia bank account — the sort of pious customer the world's most-populous Muslim-majority country is praying for as it launches an Islamic finance drive.

Indonesia, Southeast Asia's biggest economy, has a Muslim population of around 225 million, but this huge number of faithful has not translated into success for Sharia banks, institutions required to do business in line with Islamic principles.

Now regulators have launched a plan aimed at growing the sector, which currently accounts for less than five per cent of banking assets, compared to a quarter in neighbouring, more developed Muslim-majority Malaysia and around half in Saudi Arabia. 

Authorities believe it is a good moment, with many Indonesians getting wealthier after years of strong economic growth and an increasing trend towards piety across broad sections of society.

Many of those without bank accounts, estimated at about 40 per cent of the population, are soon expected to open one.

"The situation is an opportunity for the Islamic banking business to get bigger," said Nasirwan Ilyas, a senior official from the Islamic banking division of the Financial Services Authority (OJK). 

The OJK is spearheading the drive, and unveiled a five-year roadmap earlier this year that included plans to educate the public about Sharia lenders and the establishment of an Islamic finance committee to better manage the sector.

'Interest is haram' 

Key features of Sharia banking include the prohibition of interest on loans or customer deposits, and a ban on investing in "non-Islamic" businesses, such as those involving pork or alcohol.

For teacher Ramadhaniah, who has an account with Indonesia's biggest Islamic lender, Bank Syariah Mandiri, the ban on interest is a key attraction. 

"Charging interest is haram [against Islam], ill-gotten gains that will not bring me any blessings from Allah," the 44-year-old told AFP. "I don't want to live in sin."

Sharia accounts often work on a "profit-and-loss sharing" model, meaning customers get a windfall when the bank does well but can lose out when it does badly.

There are obvious disadvantages. Sharia lenders generally offer lower returns on investments and their modest size often means they provide fewer services than larger, conventional peers — many shops are not equipped to accept their debit cards.

Nevertheless, Islamic banks have proven popular in recent years, with the sector expanding on average more than 40 per cent a year between 2008 and 2012, according to the OJK.

The growth came after laws were changed to make it easier to establish an Islamic bank, and there are now a plethora of standalone Sharia lenders, Islamic banking units attached to conventional banks, and smaller Islamic financial institutions in the countryside.

Growth in the sector has lost steam due to a broader slowdown in the economy, which is expanding at six-year lows — giving authorities another reason to launch their drive.

Islamic mega-bank 

Central to the overhaul is a plan to set up a National Islamic Finance Committee this year, to oversee the sector by bringing together representatives from different government agencies and act as a contact point for potential foreign investors.

Currently responsibility for the sector is spread around different bodies, such as the OJK, the central bank and the finance ministry, according to the OJK's Ilyas.

It is modelled after similar bodies in other countries, such as the International Islamic Financial Centre in Malaysia, where the sector is already far more developed as the government started supporting it some years ago. 

In addition to the OJK roadmap, the government has announced plans to merge the Islamic banking subsidiaries of four state-owned banks to create an Islamic mega-bank, which should be able to provide better services than the current Islamic lenders.

While observers have broadly welcomed the plans, they concede that many difficulties remain.

Khalid Howladar, Moody's global head of Islamic finance, said it would be "quite a challenge" to grow the sector to a substantial level.

"The market is growing faster than conventional but from a very low base," he said, adding Islamic banks in Indonesia did not offer "substantive competition" to their non-Sharia peers.

But for Ramadhaniah and a growing army of devout Indonesians with new-found spending power, Islamic banks remain the only choice.

(The Jordan Times / 27 September 2015)

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Pakistan AFRIDI FOR ISLAMIC FINANCIAL LAWS IN BUSINESSES

Lahore—Pak-China Joint Chamber of Commerce and Industry (PCJCCI) Saturday called for making the businesses and commercial activities in accordance with Islamic financial laws. 

The PCJCCI President Shah Faisal Afridi told APP here that Islamic banking has proved over time that it is based on firm and sound economic principles and has a good potential to become an alternative system of banking especially in view of the global financial crises. However, efforts should be made to modify the existing structure to provide better products andquality service within the ambit of Islamic laws, he said. He said all stakeholders should understand the limitations at this stage and work towards its advancement to develop an economic system truly reflective of the sacred principles of Islam. 

According to Global Islamic Finance Report, Pakistan ranked at number nine in the world in terms of development of Islamic financial services industry in the country, and second largest Islamic market (population-wise) after Indonesia, and could become the most important player in Islamic banking and finance, if it attained 20 percent market share. Faisal Afridi said, “Time has come where we should look ahead and concentrate to develop innovative products with more perfection and purity.” 

He mentioned that growth of Islamic banking in the country has been over 30 percent in last few years, which is certainly above the average global growth rate of Islamic banking and finance. “If this trend continues, then one should expect that in the next three years Islamic banking assets will at least double from its current size of Rs 926 billion.” 

“If that happens, the country will stand next to a number of Gulf countries and Malaysia where Islamic banking represents between 20 and 30 percent of the market share,” he added. He said, at present there are more than 600 Islamic banking branches throughout Pakistan and 19 Islamic banking institutions are offering commercial banking services as he appreciated the new Islamic banking strategy by the State Bank of Pakistan to double the number of Islamic banking branches in next four years. 

“To achieve the desired goal, we need highly competent, motivated and involved persons with required knowledge of conventional banking and finance as well as knowledge of Islamic Shariah,” he asserted. Faisal Afridi mentioned to product innovation, development and research, flexible and practical application and enforcement of shariah principles, creation of global financial hubs and regulators as key drivers for growth and competitiveness of Islamic finance industry.

(Pakistan Abserver / 28 September 2015)

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CIMB courts HSBC Amanah chief to lead Islamic banking arm -The Edge Financial Daily

CIMB Group Holdings is expected to hire Rafe Haneef, who presently heads HSBC Amanah Malaysia Bhd, to lead its Islamic banking arm following the resignation of Badlisyah Abdul Ghani in July, The Edge Financial Daily reported on Wednesday, citing sources.

Rafe has submitted his resignation at HSBC and CIMB is in the process of obtaining approval from the central bank for his appointment, the newspaper said.

(Reuters / 22 September 2015)

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The rise of ‘halal hubs’ represents an Islamic finance opportunity

An interesting trend is developing in the halal sector: regional hubs are developing in places that have some local demand but not the size that would be significant markets on their own.

Think of Malaysia (the largest) or Dubai or tiny Brunei. Each sees the halal sector as being strategic to their economic growth, and for Dubai and Brunei at least, as key aspects of their economic diversification.  This trend has the potential to support global growth in the Islamic economy as well as SME development but need a lot of (costly) infrastructure put in place to open up the international side to SMEs, writes Blake Goud

To some degree, each country benefits from sitting on trade routes that have connected Muslims to one another for centuries for their position. If nothing else they can be logistics hubs and Malaysia can be more with a larger population that can survive also if it were autarkic.  But what differentiates the three from other places is the role they play in setting standards for the rest of the (Muslim) world.

Dubai is a hub of the MENA region which puts it as a gateway for establishing the halal authenticity of food imports that represent a lot of the food consumed in the region. Malaysia has its own domestic market but its JAKIM standard is widely accepted, though not universally. Brunei is like Dubai in having a relatively small domestic market but like Malaysia in being geographically close to huge Muslim populations.  It is trying to build its value chain that includes food, cosmetics and pharmaceuticals with an “oversight along the production chain”.

Brunei’s decision to focus on end-to-end compliance mirrors the shift globally towards the beginnings of comprehensive halal logistics system for global trade in halal products (a potentially $151 billion business according to the State of the Global Islamic Economy Report 2014/15).  This process highlights the value being created by the development of regional hubs whose standards are gaining recognition more broadly.  Standards from Dubai (ESMA and Dubai Municipality), Malaysia (JAKIM) and Brunei’s (Brunei Halal) have the potential to become more widely recognized which would be necessary to expand trade in halal products.

The hubs emerging for halal standards are concentrated in the OIC region but the hubs for halal trade are wider, and serve a much larger population than just their immediate region.  For example, in addition to the Jebel Ali port in the UAE, the Klang and Penang ports in Malaysia, there are halal hubs (as designated in the State of the Global Islamic Economy report) developing around the ports of Santos (Brazil), Marseille (France), Rotterdam (Netherlands) and Zeebrugge (Belgium).

This represents the opportunity for the regional hubs to go global and to do it in a way that is not competition against one another but through cooperation.  The halal trade market is significant but requires substantial expenditure to put in place the logistics systems that will need the support of both governments and large companies.  A lot has been made of the potential for the Islamic economy to be an engine for SMEs in OIC countries, but unless the regional hubs cooperate with larger companies to build the standards, certification, accreditation and logistics hubs which only they have the resources to do, the Islamic economy will remain a domestic opportunity for SMEs and the global picture will be dominated by the larger companies.

(Bnking Technology / 22 September 2015)

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Call to dispel Islamic banking misconceptions in Oman

Muscat: There are some misconceptions about Islamic banking in Oman, which need to be dispelled through raising awareness about this sector, says a senior official at Bank Nizwa.

“Perhaps many market participants believe that Islamic banking is just a way to ‘Islamise’ interest and they keep comparing Islamic banks to conventional banks,” Dr Jamil El Jaroudi, chief executive officer of Bank Nizwa, told ‘Times of Oman’ in an exclusive interview.

“At Bank Nizwa, it is not only our belief, but also our commitment to build Islamic banking true to its core based on Sharia,” said the official at Oman's first dedicated Islamic bank.

El Jaroudi noted that they do not want to simply replicate what is out there in the conventional banking and continuously try to innovate and build an industry based on Sharia objectives, and not necessarily just to be Sharia-compliant.

“However, during the initial phase, we do have to provide alternatives to the current conventional products to suit the demand of customers. This process will take time. In the meantime, we can help to re-design the basic concept of finance based on Sharia, which is more equitable to all rather than only based on debt,” he said.

‘Social philanthropic’

“Another misconception is that Islamic banking is similar to a social philanthropic entity. Accordingly, why do Islamic banks ask for profit margins and fees and this is why knowledge about this industry is imperative to succeed,” the official added.

“Yes, there are ethical and social obligations but above all, Islamic banks are commercial and profit oriented businesses owned by investors who chose to put their wealth at work in a Sharia-compliant manner,” El Jaroudi explained.

Asked what Islamic banking provides should do to help enhance the performance of this sector, the CEO of Bank Nizwa said that they need to grow to a certain size to be able to compete on equal footings, meaning good services and good returns to both clients and investors.

Protection

“Islamic banks need to be protected, may be incentivised as well, until it gets there because the ultimate beneficiary is the economy of Oman,” he said.

In addition, El Jaroudi said that Oman can learn from the Islamic finance experience of its neighbouring countries as well as other countries in the Far East and other regions.

“Oman has the advantage of seeing and learning from the experiences of the other markets, be it good or bad. If you look at Oman’s Islamic banking regulations, it is very much influenced by this, in addition to choosing what Oman decides is right for its market,” he said.

“However, learning does not stop here. Now we need to dig more into the main benefits of Islamic finance to economies in general and be prepared to modify or add what benefits the Sultanate the most,” El Jaroudi stated.

(Times Of Oman / 20 September 2015)

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Islamic finance prospects in Africa highly promising

JEDDAH —  A newly-released report “Islamic Finance in Africa: A Promising Future” by the Islamic Corporation for the Development of the Private Sector (ICD) takes an in-depth look at the tremendous growth opportunities for Islamic finance to flourish in the region. The new report was released during the Africa Islamic Finance Forum 2015 in Abidjan.

The report is being published as the global banking community comes together to define a transformative new landscape to integrate Islamic finance into the mainstream. 

Once of interest only to a niche market of Muslim investors, Islamic finance is now venturing beyond its traditional sphere, and is slowly gaining widespread acceptance in Africa.

The birthplace of a quarter of the global Muslim population, the report highlights that Africa features a potentially strong demand for Islamic financial services and products. 

While still comparatively under-developed, Islamic finance is expanding in many parts of the region, and is now present across most of North Africa and in many countries of East and West Africa, particularly those with sizeable Muslim communities. 

One of the recommendations of the report is that Islamic finance can act as the catalyst in mobilizing funding into Africa, thereby resulting in economic growth and sustainable development. 

It is estimated that the region needed $93.0 billion per year to finance large-scale infrastructure and manufacturing projects, while external funding is also needed to offset ballooning fiscal deficits. 

Meanwhile, 2 billion adults remain unbanked globally, and currently, sub-Saharan Africa alone accounts for as much as 17.0% of the world’s unbanked adults. 

In addition, there is a significant funding potential opportunity for Islamic banks in view of the increasing emergence of small-to-medium enterprises (SMEs) across Africa. 

In light of relatively low-income levels, a large informal sector and the prevalence of small businesses in Africa, Islamic microfinance is also a growth area worth looking into.

The report also highlights notable progress in the sukuk sector, where recent developments have seen governments focusing more on creating a more enabling environment for sukuk issuances. 

Some countries which have issued sukuk include Gambia, Sudan, Senegal and South Africa, while Ivory Coast is lining up to issue its debut sukuk at the end of the year. 

Moving forward, several countries such as Tunisia, Egypt and Morocco have expressed keen interest in tapping the sukuk market for infrastructure financing and have finalized or are in the midst of finalizing their legal frameworks to promote sukuk issuances. 

Although the Islamic financial services industry in Africa is currently dominated by the banking and sukuk segments, growth potential remains in the asset management and takaful spheres. 

In its key recommendations, the report underlines that to capture the tremendous potential, the regional industry must overcome various challenges which are broadly similar with challenges faced in other parts of the world. 

These include challenges on the regulatory front such as regulatory inconsistency, the shortage of qualified human capital, the lack of awareness and financial literacy by many end-users and consumers, and a conducive business landscape which will support the growth of Islamic finance. 

(Saudi Gazette / 20 September 2015)

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Indonesia lists world's biggest sukuk in Dubai

Indonesia listed on Sunday four sukuk valued at Dh22 billion - the largest ever carried out by a sovereign issuer on Nasdaq Dubai - as Dubai further reinforced its position as the world's leading hub for Islamic economy.

Indonesia's Finance Minister Bambang Bodjonegoro, who rang the market-opening bell to celebrate the listing of the Islamic bonds said it was an important step forward in further strengthening his country's ties with the UAE and the wider Middle East.

With the new listings, Dubai, which had already overtaken rival financial centres to become the world's leading sukuk hub in line with the goal set by the leadership, has boosted the listed nominal value of sukuk to Dh135 billion, with Nasdaq Dubai accounting for 93 per cent of that amount.

Sunday's sukuk listings are the largest ever carried out by a sovereign issuer in Dubai, underscoring the Emirate's growth as the global capital of the Islamic Economy.            

Bodjonegoro said Indonesia, the biggest Muslim nation with a total population of 255 million people, is a frequent sukuk issuer in the global market. "Since our international debut in 2009, we have issued global sukuk valued at 7.65 billion dollars," he said.

The minister said the latest listings underlined importance of sukuk as a global sovereign financial tool for investment and development and strengthen confidence in Islamic finance regulatory environment in Dubai and the UAE. 

Mohammed Abdulla Al Gergawi, the UAE Minister for Cabinet Affairs and Chairman of the Dubai Islamic Economy Development Centre, said the listing of the Indonesian sukuk was a milestone in the drive by Dubai to become the capital of the global Islamic economy.  

Gergawi said Sunday's listing would play a significant role in attracting further sukuk from around the world and further strengthen global confidence in Dubai as the capital of the Islamic Economy. It will encourage more countries and  corporations to utilise sukuk as a financial sovereign and investment tool in their development plans in the medium and long term.

Nasdaq Dubai attracted sukuk listings valued at $13.4 billion in 2014 and has added $12.6 billion so far in 2015.

By July, Dubai has overtaken other Islamic bond markets as the value of sukuk listed on the emirate's exchanges hit $36.7 billion, ahead of the world's three traditional sukuk centres: Malaysia, with $26.6 billion listed on Bursa Malaysia and the Labuan free trade zone, the Irish Stock Exchange with $25.7 billion, and the London Stock Exchange with $25.1 billion.

Leadership in global sukuk was a goal set by His Highness Shaikh Mohammed bin Rashid Al Maktum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, in his 2013 initiative to make the emirate the capital of the Islamic economy.

 While 56 per cent of Dubai's listed sukuk are from UAE issuers, 22 per cent are from Saudi Arabia. Ali said he wanted the proportion from the Gulf countries outside the UAE to grow.

The four sukuk listings by the Indonesian government under its Trust Certificate Issuance Programme comprise one issuance of $2 billion, two of $1.5 billion each, and one of $1 billion.  

"The success of Dubai's Islamic capital markets is based on our deep-rooted traditions in this field and the profound knowledge of the many experts based within the Emirate. We are delighted to collaborate with issuers and other specialists around the globe to maintain the growth of the sector for the benefit of all participants," said Essa Kazim, Governor of DIFC, Secretary General of DIEDC and Chairman of DFM.

Abdul Wahed Al Fahim, Chairman of Nasdaq Dubai, said the exchange would further develop its close ties with international and regional investors,  underpinning the global visibility of the sukuk issued by the government of Indonesia. "Nasdaq Dubai is positioned to support many more Islamic capital-raising activities by governments and public and private sector issuers around the world."

Hamed Ali, Chief Executive of Nasdaq Dubai, said  Nasdaq Dubai is continually  enhancing its swift and responsive listing process, as well as its comprehensive post-listing services. "We are committed to introducing further innovation and product development across the Islamic capital markets sector.

(Khaleej Times / 14 September 2015)

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Lifting of Iran sanctions to fuel Islamic finance growth

The lifting of international sanctions on Iran will boost the country's economy and fuel the growth of Islamic finance, Standard & Poor's Ratings Services said on Tuesday.

For Iran - one of the largest players in the Islamic finance industry contributing to around 40 per cent of global Islamic banking assets - the lifting of sanctions could bring about its eventual economic rebound and help boost Islamic finance.

The ratings agency said in a report that if Iran meets all deliverables, sanctions may start to lift in the first half of 2016.

The World Bank estimates this would help Iran's oil exports rebound to pre-2012 sanction levels within eight to 12 months. Sanctions lifting could also restore Iran's access to the global financial markets. Under this scenario, Iran's GDP growth would hover around six per cent annually in fiscals 2017 and 2018 according to market estimates, compared with less than one per cent in 2015.

"We expect that accessing the sukuk market might help Iran raise funding for its projects and be seen by global Islamic investors as a diversification opportunity. The Islamic financial market could also benefit from volume effects as post-sanction investment projects are reportedly high. This could support market growth in the medium term," S&P said.

The flipside of sanction removals is the possible drop in oil prices. This could intensify pressure on some oil exporting countries that rely heavily on oil revenues, in turn curbing their spending and banking system growth, the report said.

Tehran is aiming to ramp up oil production despite a supply glut that has sent prices down drastically.

Iran, which has the fourth-biggest oil reserves in the world and is pumping about 2.8 million barrels a day, is expected to add between 600,000 and one million barrels to output once sanctions are lifted.

But Iranian authorities are much more bullish and aim for an increase of close to 1.5 million barrels by the end of 2016, taking daily production to 4.2 million.

For banks in the UAE and Lebanon, the opening up of the Iranian economy bodes well with Tehran lining up $100 billion worth of energy deals to kick-start its economy.

Potentially, Western, Chinese and Indian banks also will likely be attracted to Iran's diversified economy and significant trade flows, according to Moody's.

(Khaleej Times / 16 September 2015)

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