TEXT-S&P report: Malaysia developing into a major islamic bond mkt



Feb 06 – As shaky prospects for the global economy continue, Malaysia’s bond market stands out by becoming the Islamic finance center for Asia with smart regulation and a growing ecosystem around Islamic finance, said Standard & Poor’s Ratings Services in a report today, titled “Development Of Malaysia’s Bond Market Is Still Assured Despite Global Turmoil.”

Approximately 70% of Malaysia’s domestic debt issuance is in the form of sukuks (financial certificates, similar to bonds, that are compliant with Islamic law), making it the world’s largest Islamic bond market with over 60% of global sukuk issuance originating from Malaysia (foreign currency A-/Stable/A-2; local currency A/Stable/A-1; ASEAN scale axAA+/axA-1).

“Policymakers in emerging markets view Malaysia as a poster child for bond market development, given that it’s now the fourth-largest bond market in Asia, after Japan, China, and South Korea,” said Surinder Kathpalia, managing director at Standard & Poor’s.

“Malaysia’s bond market has a strong infrastructure and a record of solid growth due to a transparent and predictable regulatory environment, the availability of independent credit research, the existence of ‘risk-free’ bonds of various tenors, and a bond pricing service,” Mr. Kathpalia said.

Standard & Poor’s maintains a strong outlook for Malaysia’s bond market, reflecting positive bond market developments, ongoing growth in Islamic finance, and steady macroeconomic fundamentals in the country.

Southeast Asian (ASEAN) local currency bond markets–including Malaysia’s–continued to bustle in 2011 with local currency bond issues, providing alternative funding and investment options for Asian issuers and investors when issuances in G3 currencies in Asia stalled.

“It wasn’t just ASEAN companies that tapped the markets, those in Hong Kong, India, and Korea also issued bonds in the region,” said Mr. Kathpalia.

ASEAN companies are likely to continue to seek alternative funding sources as those in G3 markets (U.S., Japan, and the eurozone) become harder and more expensive to tap, he added.

Islamic finance to boom in ASEAN: Mahathir

Former Malaysian Prime Minister Dr Mahathir Mohamad has blamed Western lending practices for the financial crisis of 2008. Speaking at an Islamic finance conference in Singapore, Dr Mahathir said that Shariah-compliant lending can succeed where the West has failed.

And ASEAN, he said, is one place where Islamic finance will boom.
 Islamic finance to boom in ASEAN: Mahathir

Islamic finance to boom in ASEAN: Mahathir

The Islamic finance industry globally has been growing at a rate of 15 to 20 percent.

Growth in ASEAN, according to some experts, is about 5 percentage points higher.

Dr Mahathir has big expectations from how the industry is likely to shape up in the region.

He said: “Being unwilling to borrow large sums of money from the Western banking system had hindered the progress of the Muslims but now with the founding of Islamic banks, the Muslims can now borrow money in order to do business, but the borrowing is done in a slightly different way from the Western banking system.

“Now, ASEAN is a place that is growing. One has to remember that the total population of ASEAN is about half a billion. With Islamic banks being available, there is capital which is now accessible to Muslims who do not want to be involved with interest.”

Dr Mahathir added that the future is looking bright for Islamic banking in ASEAN, as roughly 50 percent of the population is Muslim.

And it’s not just the Muslim communities in ASEAN that are tapping into the potential of Islamic finance.

Industry players note that Middle Eastern investors are also increasingly looking at investments opportunities in this part of the world to deploy their capital.

Sani Hamid, Financial Alliance’s director of wealth management, said: “I think overall ASEAN is growing very fast in terms of Islamic finance. As you can see, Singapore and even Hong Kong slightly outside of ASEAN, are trying to be a hub for Islamic finance.

“There is a move to try and attract more and more Middle Eastern funds into ASEAN to try and help with the issuance of companies’ sukuks and so forth. From that point of view, we are going to see ASEAN as one of the key players where Middle Eastern money is going to come in via the Singapore or Hong Kong route.”

In 2008, Islamic finance accounted for roughly 1% of global banking assets – double the level in 2005.

Separately, Dr Mahathir said that if Singapore requires information on growing its Islamic banking sector, it can seek help from Malaysia, which is a far bigger centre of Islamic finance.

Singapore has been ramping up offerings in Islamic finance, and it will soon have a university here to train scholars on Shariah-compliant banking and investment.