Path Solutions implements iMAL Islamic banking solution at Cihan Bank

Path Solutions announced the successful go live of iMAL at Cihan Bank, Erbil. Cihan, the first privately owned bank in Kurdistan first partnered with Path Solutions in October 2009 on this multi-lingual, multi-currency and multi-channel implementation.

Specifically in this deployment, Path Solutions implemented the following scope in line with the bank’s expectations: Retail Financing, Treasury, Investment, Branch Automation, Trade Finance Operations, Islamic Profit Calculation and Central Bank Reporting.

Cihan is a running Retail Bank with a paid up capital of 150 Billion IQD i.e. 127 million USD. It has been operating since April 2009, providing its services through 7 branches all over the country. The bank is a member of Cihan Group which is one of the biggest groups in Iraq, with business lines spread in many fields such as cars trading, construction, education, media, insurance and general trading.

“The implementation at Cihan Bank encountered major challenges mainly due to the Iraqi banking environment in general and specifically in Erbil. The bank was operating without the existence of a banking system and therefore most of the operations were executed and maintained manually. The challenges were of a different kind, where lots of efforts and time were spent on convincing the end users to rely on a banking system prior to convincing them to go with iMAL “, explained Alain Abou Khalil, SVP Professional Services, Path Solutions.

Abou Khalil continued: “We are excited to see the successful go live of iMAL – our first live user in Erbil out of 4 customers we have in Iraq. We pride ourselves on being able to support the specific needs of Cihan Bank, and ensuring we can serve their local requirements. iMAL will allow Cihan Bank to quickly deploy innovative Islamic banking products to an expanding customer base”.

Path Solutions’ iMAL provides a 360-degree view of customer relationships and transactional information across channels, allowing Cihan Bank to understand customers’ needs and rapidly identify cross-selling and up-selling opportunities.

The highly scalable infrastructure of iMAL Islamic banking solution will enable Cihan Bank to meet its projected expansion plans, whilst contributing to the economic growth of the country.

Naz Bajger, Director – Head of IT, Cihan Bank said: “We needed a very reliable banking solution that could provide us with the means for next generation growth. With the successful implementation of the best-of-breed iMAL Islamic banking solution, we now have a robust platform that will grow and evolve with us and will help us manage efficiently our network operations. I would like to thank the teams for their professionalism and constructive efforts in the implementation and support of this project particularly the Project Managers Abbas Aljawahiry and Dina Moh’d who were dedicated on a full time basis to deliver quality output. I am very glad to see that the joint efforts led to the success of this project”.

At a time of greater market regulation and increasing customer demands, Islamic banks need to reposition themselves. The seamless rollout of the iMAL Islamic banking solution at Cihan Bank illustrates nicely the performance of iMAL in boosting the bank’s competitiveness as well as the broadest experience of Path Solutions’ PS team in managing such challenging implementations.

Path Solutions announced the successful go live of iMAL at Cihan Bank, Erbil. Cihan, the first privately owned bank in Kurdistan first partnered with Path Solutions in October 2009 on this multi-lingual, multi-currency and multi-channel implementation.

AP sources: Congress to seek new sanctions targeting all Iranian banks

WASHINGTON — Lawmakers will seek to levy sanctions on all Iranian banks, part of a sweeping effort to push the Obama administration to further squeeze the Islamic republic’s economy and force Tehran to abandon its nuclear program, an aide said Tuesday.

The congressional aide said House and Senate lawmakers would soon introduce bipartisan legislation compelling the Obama administration to expand U.S. sanctions to every Iranian bank. More than 20 Iranian banks, including the powerful Central Bank and all of Iran’s largest state-owned banks, are currently subject to sanctions under Treasury Department rules. But several other Iranian institutions are still able to do business around the world.

The legislation also would sanction government-owned foreign financial institutions, including foreign central banks, engaged in non-oil transactions with Iran, the aide said. Under current U.S. law, those institutions will only be sanctioned for oil purchases beginning in late June.

The pending legislation aims to tighten loopholes in current U.S. laws. The legislation is being pushed Rep. Brad Sherman, D-Calif., and Sen. Mark Kirk, R-Ill., who is recovering from a stroke.

A second person briefed on the matter confirmed the legislative plans. Both sources spoke on the condition of anonymity because they were not authorized to speak publically.

Lawmakers were pushing forward with the tougher sanctions even after Israeli Prime Minister Benjamin Netanyahu said in meetings on Capitol Hill this week that sanctions were not an effective strategy for dealing with Iran.

The Obama administration is urgently trying to persuade Israel not to launch a military attack on Iranian nuclear targets, and instead give sanctions and other economic pressures time to take hold. At a White House news conference Tuesday, Obama defended the utility of economic pressure, saying “Iran is feeling the bite of these sanctions in a substantial way.”

U.S. officials acknowledge privately that they can’t be sure the economic pressure will lead Iran to abandon its nuclear ambitions.

Lawmakers have been pushing forward in recent months on increasingly stringent sanctions, in some cases seeking even tougher penalties than those preferred by the Obama administration.

The Senate Banking Committee approved tough new penalties in January that would target Iran’s Revolutionary Guard Corps, require companies that trade on the U.S. stock exchange to disclose any Iran-related business to the Securities and Exchange Commission, and expand penalties for energy and uranium mining joint ventures with Tehran.

The bill also would deny visas and freeze assets on individuals and companies that supply Iran with technology that could be used to crack down on its citizens, such as tear gas, rubber bullets and surveillance equipment.Iran insists it does not seek to build a bomb, and is developing its nuclear program for peaceful purposes.

India opts to befriend rather than sanction Iran

INDIA SAYS it is determined to continue importing oil from Iran despite EU and US sanctions aimed at stopping trade until Tehran stops what the West insists is a military nuclear programme.

Reacting to US secretary of state Hillary Clinton’s comments that the US was engaging in “very intense and very blunt” conversations with India and others such as China and Turkey to stop oil imports from Iran, New Delhi officials indicated yesterday that they would not be coerced.

India’s finance minister Pranab Mukherjee recently rejected pressure from the Obama administration to join the US-EU led sanctions against Tehran.

India imports about 12 per cent of its oil and gas requirements from Iran for an estimated $12 billion (€9 billion), and maintains it will abide only by UN sanctions and not implement those imposed by individual nations or groupings such as the US and the EU.

India recently used Chabahar port in southeastern Iran for the first time to transport 100,000 metric tonnes of wheat to Afghanistan as part of its humanitarian aid to the war-torn country.

India helped build Chabahar a decade ago to provide access to Afghanistan and central Asia – prohibited over land by neighbouring nuclear rival Pakistan – and is involved in building a 900km rail link from the Zabul iron ore mines in southern Afghanistan to the Iranian port. With Iran and Afghanistan, it has agreed that Indian goods headed for Central Asia and Afghanistan will benefit from tariff discounts at Chabahar.

In addition to its oil needs, India wants to cement ties with a besieged Tehran so as to retain access to Kabul in the run-up to the US withdrawal from Afghanistan and to the Asian republics, where there are vast hydrocarbon reserves that could fuel India’s economic development.

Over the past few weeks a defiant India has been examining ways to step up trade with Iran amid trouble in settling its oil bills as sanctions closed down banking routes.

Much to Washington’s ire, New Delhi is sending a large trade delegation to Iran later this month to explore business opportunities created by western sanctions.

The Associated Chambers of Commerce and Industry in Delhi said the Islamic republic offered massive potential for Indian exports: more than $10 billion (€7.5 billion) a year.

“The potential of trade and economic relations between India and Iran can touch $30 billion by 2015 from the current level of $13.7 billion,” association secretary general DS Rawat said.

An Iranian central bank delegation is currently in Delhi to examine options for India to pay for crude imports. It is negotiating to offset a proportion of this bill in exchange for oil-refining machinery, heavy engineering goods and pharmaceuticals, all badly needed in Iran.

Until recently Indian firms were routing payments through Turkey’s Türkiye Halk Bankasi AS, after EU pressure last year forced German-based Europäisch-Iranische Handelsbank AG to stop handling the payments. It remains uncertain how long this arrangement will continue.

Contracting GDP

The Egyptian economy contracted by 0.3% in the fourth quarter ending a politically-momentous but economically-forgettable year for the country.

“Though private spending jumped 5.1%year-on-year in 3Q11 up from 3.5% a quarter earlier; the drastic fall in investments by 23%YoY kept GDP growth at a low level of 0.3% – below 2Q11 of 0.4%. Investments in 4Q11 is expected to see even higher year-on-year drop of 38% – triggered by the escalated tension during this quarter,” says CI Capital research in a note.

While the USD3.2 billion loan from the International Monetary Fund is going to boost sentiment, the country has a long way to go to reach stability.

“Egypt’s economic situation remains challenging. Growth has stalled and this is hurting the Egyptian economy and the Egyptian people,” said Gerry Rice, Director of External Relations at the Fund. “In addition, foreign exchange reserves have dropped substantially, reducing the authorities’ margin to maintain macroeconomic stability.”

The country’s foreign reserves have dropped 53% year-on-year in January to USD16.4-billion, as capital fled the economy last year.

In addition, foreign direct investment remains depressed.

“Social and political unrest in Egypt is still weighing on FDI inflows. In 3Q11, FDIs retreated to USD0.4bn vs. USD1.6bn a year earlier,” notes CI. “This came above our expectations of USD0.2bn. Moreover, huge foreign selling in equities and bonds shifted portfolio investments to a net outflow of USD1.7bn, vs. a net inflow of USD5.9bn in 3Q10.”

The Institute of International Finance (IIF) expects countries such as Egypt, Tunisia and Libya – all of whom saw the end of their dictators’ rules in 2011 – to continue to see weak growth over the next 12-18 months.

It is clear that in Egypt economic policymaking will remain subservient to political issues. There is definite lack of clarity surrounding the economic policy framework and great difficulty in forging political consensus due to the diversity and multiplicity of political parties in the new governing coalition.

As a result, the IIF expects the economy to perform only modestly in the coming 2-3 years.

“Egypt… could be heading towards an economic crisis if growth rates do not take off unemployment that does not begin to show meaningful declines,” the IIF said

Indeed, the political situation looks messy at the moment with many disgruntled stakeholders.

The Muslim Brotherhood’s Freedom and Justice Party won 47.2% of the parliament seats with the Salafist Al Nour party winning nearly 25%, leaving the liberals way behind.

This political turnaround has left many liberal Egyptians, who led the Tahrir Square revolution last year, feeling disillusioned as the country takes a more religious turn in its political and social life.

“Real and honest moderate Egyptian Islam has receded in the face of Wahhabi Islam coming from Saudi Arabia and the Gulf countries,” wrote Alaa Al Aswany, a best-selling Egyptian author and columnist in a recent blog.

“For thirty years masses of oil money has been used to drown Egypt in Wahhabi ideas. The purpose of this support for the Wahhabi school of thought is basically political, in that the Saudi system of government depends on an alliance between the ruling family and the Wahhabi sheikhs. Hence spreading the Wahhabi ideology reinforces the political system in that country,” Mr Al Aswany wrote in his blog.

Analysts have accused the majority Freedom & Justice Party for colluding with the Salafists and the army to ensure the ‘status quo’ of miltiary dominance remains; any changes, they feel, are merely cosmetic in nature.

The final piece of the political puzzle will be put in place in the next few months when nominations for presidential elections start on March 10 to April 8.

The spoardic clashes between the army and protestors and the football stadium tragedy which saw 70 people killed, shows the situation remains volatile in the country.

Meanwhile, Egypt’s relations with the United States and its client state Israel are also worrisome.

“The current US-Egypt military relationship could become a casualty of rising nationalism in Egypt, the prosecution of democracy workers in the country, and the likely marginalisation of the armed forces. A breaking point this spring could come amid economic crisis in Egypt, with destabilising results,” said a note from Oxford Analytica.

The Muslim Brotherhood has also warned that it could review relations with Israel if the U.S. reduced military aid to Egypt.

“U.S.-Egyptian ties have withstood serious tensions in the past. Yet in the present political context in both countries, a bilateral crisis is possible — with broader ramifications for Egypt’s stability,” noted Oxford Analytica.

This may be an exaggeration given that Egypt will likely forge closer ties with its Sunni neighbours the rich Gulf states, who could step in financially if the U.S. aid stops.

But the 80-odd million Egyptians are finding a way to keep the economy moving. CI Capital outlines some of the major economic deveopments over the past few weeks:

  • The Central Bank of Egypt set a 100bps raise in deposit rate and 50bps increase in lending rate – putting its support for the local currency ahead of backing investments.
  • The IMF USD3.2bn loan is to be signed in March 2012 bearing an interest of 1.2%. The loan will be received this loan over three phases; by which one third of the loan will be received upon signature, while the second tranche will be received after 3-month period; and the last tranche after six months from signing the loan.
  • Apache Corporation has agreed with the Government of Egypt (GoE) to invest USD1bn in oil and gas explorations in Egypt in 2013.
  • The World Bank approved an USD240mn loan to develop the Giza North power project as part of an USD600mn loan approved in 2011.
  • Egypt signed a soft loan with the World Bank worth USD200mn with an interest rate of 1.2%. The loan is to finance the second phase of the waste water project with an investment cost of USD310mn.
  • The government decided to offer PPP projects in the infrastructure and sewage projects worth EGP11bn.
  • The PM allocated EGP175mn for the development of slum areas throughout Egypt – scheduled to start immediately. The budget includes EGP100mn from the Slum Development Fund and EGP75 mn from the general budget.
  • Egypt signed gas export agreement with Jordan over the new prices to be applied retroactively as of January 2011and is due to be revised mid 2013 and every two years after.
  • Japan granted Egypt USD12mn to support the agriculture sector through applying maintenance to the irrigation and potable water networks.

Meanwhile, the Egyptian stock exchange which was rocked last year by the political unrest and saw a 47% decline, has surged 41% in the first six weeks of the New Year, making it the best performing market in the region.

Market data shows that emerging markets funds are taking another look at the Cairo market, given its low PE valuations and the long-term prospects of the country.

This growth is even more commendable given that Standard & Poor’s recent lowered the country’s credit rating to B with a negative outlook.

The Egyptian Central Bank interventions–to support the Egyptian pound in the face of significant capital outflows and double-digit annual inflation–have resulted in a sharp decline in net international reserves. These were USD16-billion at end-January 2012, down from USD36-billion at the start of 2011, the ratings agency said in its review.

“Historically, our assessment of Egypt’s external score has been a relative strength to the rating; this is now being eroded. We estimate that net international reserves, excluding gold, now cover less than three months of goods and services imports compared with more than six months at the start of 2011,” said the agency.

In addition, S&P warned that if the government fails to stem the decline in reserves, or an uncertain policy environment and weak institutions emerge from the ongoing political transition, the rating could be lowered further.

“The political transition process could be undermined over the coming year as the constitution is redrafted and a new president is elected–currently expected by June 2012–after which a new government would be formed,” said the agency.

“In our view, the transition to more-participatory political institutions in Egypt could falter, leading to weaker political institutions and rising domestic conflict.”

Frontier Stocks Lose in Best Rally Since ‘91

All nine of the world’s worst-performing equity indexes this year are in frontier countries, where the average stock- market value of $30 billion is about 95 percent less than in emerging nations. While the MSCI All-Country World Index (MXWD) jumped 11 percent, gauges in Bangladesh (DHAKA) and Sri Lanka sank at least 8 percent as interest rates increased.

Nigeria’s stock index fell 1.1 percent after union strikes and attacks by Islamic militants. Frontier-nation stocks trade at the lowest valuations since at least 2008 versus emerging-market shares.

Falling valuations reflect concern that growth in the smallest economies, which expanded about 20 percent slower than larger developing nations on average during the past three years, won’t accelerate in 2012. Bank Julius Baer & Co. says the losses create buying opportunities for long-term investors. Ashmore EMM LLC has been cutting frontier-market holdings and Oversea-Chinese Banking Corp. (OCBC) is avoiding the stocks.

“On a purely tactical basis, we have actually reduced exposure in frontier markets,” said Antoine van Agtmael, who coined the term “emerging markets” in 1981 and now oversees about $7.1 billion as chairman of Ashmore EMM in Arlington, Virginia. “The larger, more liquid markets offered relatively more compelling investment opportunities.

The 25-country MSCI Frontier Markets Index (MXFM) increased 2.8 percent this year, trailing the emerging-market measure by about 13 percentage points. Nigeria’s Union Bank of Nigeria, Bangladesh’s Dhaka Electric Supply Co. (DESC) and Sri Lanka’s Lanka Orix Finance Co. (LOFC) declined more than 29 percent, countering gains in Vietnamese shares including Bao Viet Holdings and Vietnam Dairy Products Joint-Stock Co. (VNM)

MSCI Inc.’s gauge of shares in 21 emerging countries, which have an average stock-market capitalization of $603 billion, surged 16 percent this year as Brazil reduced its benchmark interest rate to the lowest level in 18 months and China cut banks’ reserve requirements. A new three-year lending program from the European Central Bank and data showing a rebound in the U.S. job market eased concern that developing-nation exports will slow.

The price-to-reported earnings ratio for the frontier index, comprised of companies with an average market value of $2.6 billion, dropped to 10.7 from 16 a year ago and trades at a 10 percent discount to the emerging-market measure, made up of companies with a mean market capitalization of $12 billion.

‘Macro Risk

“I would go for quality as opposed to underperformance,” said Vasu Menon, a vice-president of wealth management at Oversea-Chinese Banking, the second-largest financial services group in Southeast Asia. “It’s a year you don’t want to add on another layer of risk on top of macro risk.”

Frontier markets have smaller economies and worse rankings on gauges of business climate and corruption than emerging markets. They also have lower trading volumes, which make it more difficult for investors to sell shares.

The average annual gross domestic product for nations in the frontier index is $118 billion, compared with $994 billion for the emerging-market gauge, according to data compiled by Bloomberg and the International Monetary Fund. Frontier countries have an average ranking of 74 in the World Bank’s ease of doing business index, compared with 70 for emerging markets. Their mean ranking of 82 in Transparency International’s corruption perceptions index is worse than the 75 average for emerging countries.

Liquidity Trap

Less than $15 million of shares changed hands each day on Sri Lanka (CSEALL)’s Colombo Stock Exchange during the past month, compared with $12 billion on the Shanghai Stock Exchange in China, the biggest emerging market, according to data compiled by Bloomberg.

“Frontier markets are riskier on the liquidity front, so you may get trapped there when times change,” Chong Yoon Chou, the Singapore-based investment director at Aberdeen Asset Management Asia Ltd., which has $75 billion of assets in Asia, said in a phone interview on Feb. 13.

The rally in emerging-market stocks in October 2008 foreshadowed the end of the last bear market in frontier countries. The MSCI frontier index surged more than 50 percent in three months after hitting a bottom in March 2009. The gauge’s ratio of price to trailing earnings was 10 when the rally began, compared with 10.7 on Feb. 24, data compiled by Bloomberg show.

Vietnam Gains

The short-term challenges facing frontier countries haven’t reduced their long-term growth potential, said Mark Matthews, the Singapore-based head of research for Asia at Julius Baer. While their average expansion may slow to 4.3 percent this year from 4.6 percent in 2011, growth will probably accelerate to 4.8 percent by 2015, forecasts by the Washington-based IMF show.

Frontier countries including Vietnam will lure manufacturers from China as labor costs in the world’s second- largest economy rise, according to Matthews. About 60 percent of Vietnam’s 87 million people are below the age of 35 and minimum salaries were equivalent to $85 a month in 2009, compared with $173 in China, according to the United Nations’ International Labour Organization.

Frontier markets “are a great structural story,” said Julius Baer’s Matthews, who helps oversee about $180 billion. “If you are taking a three-year view, you won’t worry if it falls in six months.”

Vietnam’s benchmark VN Index gained 1.2 percent today. It advanced 22 percent this year, rebounding from a 27 percent retreat in 2011, as inflation slowed for a sixth straight month in February to 16.44 percent. Dominic Scriven, the chief executive officer of Ho Chi Minh City-based money manager Dragon Capital Group Ltd., said by phone on Feb. 17 the rate may drop to between 8 percent and 9 percent this year, giving the central bank room to cut borrowing costs.

Mobius Is Bullish

Bao Viet Holdings (BVH), a Hanoi-based insurer, has rallied 43 percent in 2012. Ho Chi Minh City-based Vietnam Dairy Products, known as Vinamilk, has increased 5.8 percent and trades for 11.8 times reported earnings, compared with an average 17.5 times since Bloomberg began compiling the data in 2006.

“Taking a long-term view is the best way to cope with volatility,” said Mark Mobius, who oversees more than $40 billion in developing nations as executive chairman of Templeton Emerging Markets Group. “As these countries move ahead, their governments are taking the steps necessary to help support sustained, steady growth.”

Nigeria Inflation

The best investment opportunities so far this year are in emerging markets, Ashmore EMM’s van Agtmael said. The MSCI emerging-market gauge is valued at 12 times reported profit, lower than the 13.7 average during the past decade, data compiled by Bloomberg show. In China, where the economy expanded at an 8.9 percent rate in the fourth quarter, stocks in the Shanghai Composite Index (SHCOMP) trade at a 53 percent discount to their 10-year average price-earnings ratios.

Van Agtmael said he cut holdings in Nigeria, where the benchmark equity index dropped 16 percent last year. Lagos-based Union Bank of Nigeria sank 30 percent since the end of December, and was the second-biggest drag on the Nigerian Stock Exchange All Share Index after Dangote Cement Plc. (DANGCEM)

A week-long general strike last month mobilized millions against President Goodluck Jonathan’s decision to remove fuel subsidies, while attacks by Islamist militants killed as many as 256 people in the northern city of Kano.

Sri Lanka, Bangladesh

Nigeria’s central bank predicted inflation will accelerate to about 14 percent by mid-year from 12.6 percent in January, even after policy makers lifted the benchmark interest rate 6 percentage points since September 2010 to 12 percent.

Inflation in Bangladesh has exceeded 10 percent every month since March as food and electricity prices climbed and the nation’s currency, the taka, depreciated 13 percent against the dollar during the past year. The central bank raised interest rates on Jan. 5 for the second time in four months.

Concerns about political stability have increased after Bangladesh’s army said on Jan. 19 that it foiled an attempt to oust Prime Minister Sheikh Hasina Wajed’s government. The Dhaka Stock Exchange General Index tumbled 14 percent this year, extending last year’s 37 percent drop. Dhaka Electric, which distributes electricity in Bangladesh, lost 29 percent in 2012.

In Sri Lanka, the government said it raised petroleum prices this month and will add a fuel surcharge on electricity bills. Higher fuel costs and the rupee’s tumble to the lowest level since April 2009 have stoked inflation and prompted the central bank to raise interest rates for the first time since 2007 this month.

Volatile Markets

The Colombo All-Share Index, which surged more than 200 percent in the two years after the nation’s 26-year civil war ended in May 2009, declined 8. percent this year. Lanka Orix Finance, a Colombo, Sri Lanka-based consumer-finance company, tumbled 28 percent.

For stocks in Sri Lanka and Bangladesh, “I wouldn’t buy them immediately, I will probably wait until the end of the year once the tightening is complete,” said Arjuna Mahendran, the Singapore-based head of Asia investment strategy at HSBC Private Bank, which oversees about $500 billion. “Because they are small, they tend to be really volatile, a little bit of money can pump the market up very fast, and vice versa.”

Qatar's Economic Outlook Bright in 2012


Qatar’s banking sector is in rude health, as evidenced by the Gulf emirate’s position as the regional leader in terms of bank lending growth. According to the Qatar Central Bank, overall bank credit rose to QR368.9bn as of end-November 2011, representing a 23.5% year-on-year increase.

The average rate of increase in the three months to end-November 2011 was an impressive 22.3%, while private sector credit growth in November reached QR227.85bn, up 22.3% year-on-year, and public sector credit rose by an astonishing 28.6% year-on-year to QR141bn. Particularly telling is the growing role of the national banking sector in funding public sector projects and other activities: according to Central Bank statistics, around 38% of overall bank credit is disbursed for these purposes.

Such activity is unlikely to dim in 2012. According to Dubai-based Rasmala Investment Bank, the Qatari banking sector is likely to grow at a rate of as much as 20% in 2012-14, with underlying returns on total capital of around the same level. The investment bank believes that the sector’s medium-term dynamics are solid, although it does warn that eventually there could be concerns regarding where capital will be deployed.

For now, however, the prospect of contracts being awarded for 2022 projects leads analysts to forecast broad-based growth for 2012. With tenders for World Cup 2022 projects nearing the award stage, the public sector is poised to begin disbursing funding and contracts, and is also likely to allow the private corporate sector to contribute more heavily towards loan growth.

According to Rasmala, the announcement in September 2011 that the government had raised public sector pay by 60%, and the salaries of defence personnel of officer rank by 120%, is likely to fuel retail sector growth, in turn providing headroom for future consumer credit expansion. These enormous rises have presumably been matched by banks in the Gulf state, as well as many other industries; banks will be paying their Qatari employees more, so costs in the sector will likely rise.

Nevertheless, while the oversupplied and over-priced property market had led to a dip in consumer lending, consumer lending portfolios are likely to continue their rebound in 2012.
Rasmala does warn that in 2012, a potential risk to banks in Qatar will be the new Islamic Banking regulations, which rocked the state’s financial sector when they were announced in January 2011.

The Central Bank ordered conventional banks to close their Islamic finance operations by end-2011, arguing that with the pending implementation of tailored Islamic banking regulations and capital adequacy regimes, commercial banks with both conventional and Islamic operations would struggle to follow the rules. The Islamic banking regulations, which were based on guidelines by the Malaysia-based Islamic Financial Services Board, an industry standards body, were formally introduced last year.

For the nation’s four Islamic banks — Qatar Islamic Bank, Qatar International Islamic Bank, Masraf Al-Rayan and Barwa Bank – it’s very much business as usual; their conventional peers, however, are having to learn to cope with life after shariah-compliant finance.
At the Qatar Exchange, meanwhile, 2012 ended on a bittersweet note. The bourse broke back into positive territory, ending with a 1.1% gain for the year, and maintaining its position as the best performing market in the GCC and Arab region for the second consecutive year.

It was the only market in the Arab region with positive price return, and the exchange’s year-end market capitalization of more than QR457bn represented an increase of almost 1.6% from end-2010. In a year which saw the exchange extend its opening hours and implement a Delivery Versus Payment model to speed up settlement times, the bourse also saw the launch of its first new brokerages since 2006, and listed short-term T-bills.

However, it lost out on the big prize: along with the UAE, Qatar was denied a much-anticipated boost when index manager MSCI declined to upgrade the Qatar Financial Centre (QFC) from ‘frontier’ to ’emerging market’ status.

According to MSCI the country’s strict foreign ownership limits, and the limited availability of shares to foreign investors, have made shares in large companies almost unobtainable for international investors.

“Large companies, such as Industries Qatar, have almost reached their foreign ownership limit and became quasi-uninvestable for foreign investors,” MSCI said in its report. “Under current conditions, the MSCI Qatar Index would not qualify for Emerging Markets on this criterion.”

The Qatari government will console itself with the knowledge that the Gulf’s landmark sovereign debt issue in 2012 belonged to its tri-tranche conventional Euro-bond in November. The US$5bn placement, which was broken into tenors of five, ten, and 30 years with yields of 3.12%, 4.5%, and 5.75%, respectively, was heavily oversubscribed and served to highlight Qatar’s attractiveness to investors.

The ratings agencies are on board – Qatar has an AA rating from S&P and Aa2 from Moody’s – and the bond, the country’s first since November 2009, should provide Qatar’s $10.3bn Barzan natural-gas field project, the most expensive energy project in the Gulf since 2006.
The Qatari government’s total infrastructure spending over the coming five years is estimated at US$150bn, and it’s this investment which will underpin much of the economic growth the country will enjoy over the period.

Just last month, energy minister Mohammed Al-Sada confirmed the country planned to more than double its annual petrochemical production capacity from 9.2 million tonnes now to 23 million tonnes by 2020, spending $25bn in the process. Already the world’s largest Liquefied Natural Gas exporter, Qatar has imposed a moratorium on further export development of its huge North Field until 2014; in the meantime, the state is pumping money into other projects such as a US$6.4bn petrochemicals complex at Ras Laffan industrial city, with Royal Dutch Shell.

While the race for World Cup 2022 is still a long way away for the world’s footballers, for the global investment community, not to mention the burgeoning Qatari business sector, the big kick-off is much closer.

Nigeria: First Islamic Bank Begins Business in Three Branches

Nigeria’s first licenced Islamic bank, Jaiz Bank Plc, has commenced full operation of non-interest commercial banking in Nigeria from three branches in Abuja, Kaduna and Kano.

A staff of the bank in Abuja Office said most of the early customers were groups of business institutions and private individuals from different religious persuasions making enquiries as well as opening different accounts.

The officer in Operations Department said the service of the bank was opened to everyone that is interested in the non-interest products.

The introduction of Islamic banking is part of a drive by the Central Bank of Nigeria, CBN, to propel Nigeria’s economy and promote financial inclusion by introducing alternative products. The non-interest regime offers veritable incentives and attractive options for investors.

At its inaugural Annual General Meeting (AGM), Chairman of Jaiz Bank, Alhaji Umar Mutallab said: “The whole idea of the banking option is to bring more people into banking in Nigeria that provides banking without interest.”

Mutallab, who was Chairman of FirstBank, further added: “This kind of banking is for all religions because no religion wouldn’t want to help, especially funding critical project without using interest elements.

Whether it is Christianity or Judaism, every community wants to borrow money without being bugged down with multi-layer interest structure.

“This banking option is a product with a difference. We hope our brothers from the divide will see it as an ethical bank which is not meant to promote a particular religion. It is for all Nigerians and not Muslims alone. Once you have a viable project proposal which is ethical, which doesn’t cater for such things as liquor, gambling etc, it becomes a halal (lawful) project and would be looked into by the bank.”

Islamic banking, also known as participant banking, is banking activity that is consistent with the principles of Islamic law and its practical application through the development of Islamic economics. The system prohibits the fixed or floating payment or acceptance of specific interest or fees like usury for loans of money.

MSM posts highest gains this year

MSM posts highest gains this year

he MSM30 index ended last week (February 6-9) with the highest weekly gain this year, adding 1.04 per cent to 5,622.18, with all the sectoral indices in green territory.

The MSM30 index was supported by Renaissance Services, BankDhofar and Omantel. The Al Arabi Oman 20 index increased 1.07 per cent to finish at 1,006.45 with a traded value of RO8.43mn. The Al Arabi GCC 50 index rose 1.69 per cent to 972.07.

The market is still awaiting disclosures and financial results of many leading companies, especially in the services sector, and we expect the market to move in a linear fashion despite the disclosures of many leading companies which lacked their board of directors’ future strategy and mechanism of dividend distribution.

In addition, the risks associated with operations still stand, which require the board of directors of those companies to disclose their approach in minimising such risks. We can say that GCC markets are capable of reducing standing risks, but the weakness lies in the low turnover in these markets, as encountered in 2011.

However, the recent improvement in turnover in the region has been very impressive. But this has not rubbed off on the local market for reasons unclear to us. We are, however, sure that these reasons are not related to market fundamentals and might be attributed to investors awaiting more disclosures on companies’ future strategies, especially in the financial sector.

The Services index in the MSM continued to perform well for a third consecutive week adding 1.36 per cent with support from Renaissance Services, Omantel and Al Maha Petroleum Marketing Co.

The Renaissance stock gained 7.1 per cent week-on-week and closed at its highest in a month at 528bz. At the beginning of the week, the company announced that its subsidiary Topaz Energy & Marine was awarded a contract by GAC Group to provide completion services for two crew/cargo vessels.

During the week, Omantel announced its much awaited full-year 2011 results. The preliminary results indicate that revenue in the fourth quarter of 2011 rose on year as well as on a quarterly basis with increases of 8.5 per cent and 8.7 per cent, respectively, to RO119mn.

However, stability in the EBITDA margin at the same levels of the previous quarter at 53 per cent, pointed to an increase in operating expenses within the same range.

The bottom line increased by 7.7 per cent quarter-on-quarter (+10.4 per cent year-on-year) to RO30.2mn in Q4’11 mainly on the back of a strong operating performance. Although net margins remained stable at 25 per cent, in absolute terms the Q4’11 net profit was the best in two years. The stock posted its highest daily gains this year on the day of the announcement (+1.51 per cent).

SMN Power Holding’s first yearly financials since its IPO in October 2011 indicate a notable increase in net profits, by 222.4 per cent y-o-y for FY’11 to RO3.8mn. Lower finance costs, better other income as well as lower taxes played a significant role in supporting the bottom line.

At the operational level, the company registered a slight decline in operating margins from 25.2 per cent in FY’10 to 23.48 per cent in FY’11. Operating profit stood at RO19.1mn in 2011 compared with RO 19.7mn for the previous year.

The Industrial index came second in the MSM with a 0.82 per cent weekly gain, supported by Al Anwar Ceramics Tiles, Voltamp Energy and cement

companies. The Financial index with a support from BankDhofar and National Bank of Oman increased 0.49 per cent to 6,335.62.

In the leasing sector, Muscat Finance’s initial FY’11 results indicate a healthy improvement in net profit margins – from 36 per cent in 2010 to 38.4 per cent in 2011 – backed by lower total expenses (including interest expense, selling, general and administrative expenses, depreciation, provisions and taxes) for the same year. The company registered a gross income of RO 9.3mn for 2011. Net profit stood at RO3.6mn, an increase of 6.3 per cent on year.

This performance supports our positive view on the sector. The company recommended a 20 per cent stock dividend for FY’11, subject to the approval of the Central Bank of Oman and shareholders of the company.

As last week had only four working days due to the Holy Prophet’s birthday, a weekly comparison of volumes and turnover would be inaccurate. However, foreign institutions were seen entering the market, net buying RO34,000 worth of shares. On the other hand, Omani institutions exited the market registering a net sale of RO1.1mn.

Quarterly net corporate earnings announced, till date, for the quarter ending December 2011, have increased 2.5 per cent q-o-q to approximately RO141mn against the previous quarter (on a like-to-like basis) supported mainly by Financial and Industrial sectors

The Industrial sector has posted the highest quarterly increase in net earnings till date amongst the sub-sectors – gaining 18.7 per cent q-o-q to around RO14.8mn owing to the strong quarterly performance of Oman Cables Co., Oman Refreshment, A’Saffa Foods and Oman Cement.

Also, in line with our view, the Financial sector posted healthy results and registered a 8.8 per cent q-o-q rise in net earnings till date (on a like-to-like basis) to around RO72mn for the quarter mainly on the back of better performances by insurance, leasing and holding companies.

Although Omantel’s results were positive and mitigated the negative impact of lower profits affected by Nawras, the Services sector net earnings, till date, declined 8.2 per cent q-o-q to around RO54mn for the same quarter affected by the moderate performance of oil marketing companies, Sohar Power, Port Services and Oman Holding International.

In a related issue, 23 companies have so far announced their dividends, including 15 companies with the announcement of cash dividends only. While two companies declared stock dividend and six companies announced both cash and stock dividends.

As per our database, the total announced cash dividend distribution for 2011 till date stood at RO119.3mn compared with RO107.4mn for the same companies for 2010, an annual increase of 11.1 per cent.

On another front, our database shows that since the beginning of 2012, total allotted CBO certificates of deposit was around RO1.48bn, compared to RO1.73bn in the same period of the year 2010, a decline of 14.16 per cent year-on-year.


As we know, banks have initiated procedures to increase their paid-up capital, either for the purpose of establishing Islamic windows or to support financing sources to improve their financial indicators.

We advice investors to take into consideration the prospective companies’ capital increase, especially the leading ones, and build their portfolios accordingly, and to monitor and carefully study board of directors and management reports for strategies and future plans.

Oman’s Zadjali Says Islamic Banks’ Guidelines Draft Almost Ready

Oman, whose banking industry more than doubled in five years, is close to finishing a draft rulebook for Islamic banking in the Gulf Arab country, said central bank governor Hamud al-Zadjali.

“We are preparing a rulebook for Islamic banking, and the first draft is almost complete,” al-Zadjali said in a phone interview today. The central bank met with local lenders on Jan. 25 to discuss the regulations, he said.

The guidelines won’t be completed before the banking law is amended by mid-year to incorporate lenders that comply with the religion’s ban on interest, al-Zadjali said. Oman approved the creation of two Islamic banks last year, Al Izz International Bank in October and Bank Nizwa in May.

Shariah-compliant banking will allow lenders in the country, home to almost three million people, the chance to tap growth in the global Islamic finance industry. Shariah financing is expanding as much as 16 percent a year and the industry may be valued at $1.5 trillion by the end of 2012, Raj Mohamed, managing director at Singapore-based consulting firm Five Pillars Pte, said Jan. 18.

Islamic banking assets may account for a 10th of Oman’s industry total within 12 months of starting services, Hilal Al Barwani, vice president of banking supervision at the central bank said Jan. 18. Oman’s banking assets jumped to 17.9 billion rials ($46.6 billion) in November from 7.02 billion rials the same month in 2006, according to central bank data.

To contact the reporter on this story: Dana El Baltaji in Dubai at [email protected]

To contact the editor responsible for this story: Claudia Maedler at [email protected]

Islamic banking draft moots five-member Sharia board

MUSCAT: A five-member Sharia board, exclusive branches for window operation, clear cut segregation of conventional and Islamic banking with separate teams of people and accounts and a 12 per cent capital adequacy ratio are the main highlights of the Islamic Banking Draft Framework (IBRF) presented by the Central Bank of Oman before chief executives of banks in Oman.

CBO has organised a consultative meeting for top officials of banks on January 25 for presenting the draft Islamic banking rules, which the apex bank’s consultants Ernst & Young termed as a ‘unique model.’ The banking regulator is still working on the regulation, and may incorporate changes on the basis of feedbacks from banks, before announcing it. Ernst & Young has advised the CBO on fixing of lending limits, single borrower limit, writing of rule books, procedures for reporting structure for Islamic banks and formation of Sharia board.

Of the five-member Sharia board, three should be experienced Islamic scholars and two should be from relevant field, either a professional in Islamic law or Islamic accounting, chief executive officers of two leading banks, who attended the consultative meeting, told Times of Oman. CBO’s draft regulation also stipulates on separate branches for Islamic banking window operation of conventional banks.

“There needs to be a separate team of people for accounts, information technology, marketing and compliance for Islamic banking line of business. There is also a separate head for Islamic banking. However, the back office support can be common for conventional and Islamic banking.

The whole idea is to create a perception among general public that these are two distinctly different lines of business,” said a chief executive of a bank, who does not want to be named. The draft regulation also insists on a 12 per cent capital adequacy, with a minimum paid up capital of RO10 million for starting window operation.

Another major suggestion for window operation is that funds can be pumped into Islamic line of business by a conventional parent bank, but Islamic banking operation can not transfer money for using it in conventional banking. “This could create problems at the macro-level, at least initially.

For instance, if all banks put together transfer RO1 billion into Islamic banking initially and in case half of the total funds can not be deployed due to lack of demand for credit, then the money can not be transferred back to conventional line of business for effectively deploying in the financial system,” noted another CEO of a bank, who viewed it on a macro economic level.

Another major concern expressed by bankers is the lack of availability of Sharia scholars to become board members of Islamic banking. “Everybody is getting into Islamic banking now. We are talking about 30 Sharia scholars. It is difficult to get people with relevant experience and it is going to be a challenge.

Even the region does not have that many people. This is what we are discussing with the Central Bank of Oman,” noted the official. It is also not clear whether a Sharia scholar can be a member of two boards.

Bankers also expressed their concerns on segregating risk management for Islamic banking line of business from conventional banking. “At the end of the day, risk is the same whether it is Islamic banking line of business or conventional line of business. And therefore, it should be on the parent bank and not separate it for Islamic banking,” noted the banker.

Sources also noted that there will be severe competition, with the imminent entry of two Islamic banks.