CIMB Singapore aims to approve S$100 mln Islamic loans for SMEs

KUALA LUMPUR: CIMB Bank, which started its Islamic commercial banking operations in Singapore last year, aims to approve S$100 million this year for the small and medium enterprises (SMEs) in the republic.

“We are targeting about S$100 million for SME financing this year.

“At the moment, we already have about S$30 million on our balance sheet with a healthy pipeline for the full year.

“The take-up rate of Islamic financing for SMEs has been encouraging although it is very early days for the industry in Singapore,” said Badlisyah Abdul Ghani, CIMB Group’s head of group of the  Islamic banking division.

He said the bank’s Islamic commercial banking operation has been growing in Singapore although the Muslim community makes up less than half of the population.

“It is not about whether you are Muslim or non-Muslim. It’s all about value proposition.

“When customers see there is good value in our Islamic finance products, they’ll take up these products,” he told Bernama in an interview.

The bank plans to roll out its Islamic retail offerings soon as it has put in place a new core banking system that caters to its operations.

“We are looking at bringing to the market sometime in the third quarter, our pioneering Islamic retail deposit products as well as our award-winning Islamic structured products first before looking at any retail financing products,” Badlisyah said.

In Indonesia, CIMB has rolled out close to 60 Islamic financial products over the last two years, which included products that were re-launched.

“When we first started, we have only about 11 products in CIMB Niaga Syariah.

“We have now included Islamic trade finance, Islamic commercial banking, corporate banking offerings and many more.

“As for retail offerings, we undertook a segmentisation exercise so that we can target different consumer segments.

“Our ArRahnu business launched last year has had good traction and we now have about 100 outlets across Indonesia,” he said.

Badlisyah said this year, the bank’s Islamic banking business in Indonesia would focus on building up the portfolio as it has all the relevant products in place for all types of consumers.

He also said that CIMB Niaga Syariah, the Islamic finance window under PT Bank CIMB Niaga Tbk, had staged another record year for its financial year ended Dec 31, 2011.

“The bank posted 70 per cent growth both in deposit and financing assets on year-on-year basis and is looking to do better in 2012,” he said.

CIMB Niaga Syariah is now the fifth largest Islamic financial institution and the largest of all Islamic windows, in terms of assets in Indonesia. There are 34 Islamic players in the market comprising stand-alone Islamic banks and Islamic windows. — Bernama

CIMB completes sukuk issue

KUALA LUMPUR: CIMB Group Holdings Bhd’s Islamic banking unit, CIMB Islamic Bank Bhd, completed the issuance of RM250mil Tier 2 junior sukuk on April 21, which was priced at 4.2% per annum.

“The AA1-rated junior sukuk with a maturity of 10 years is callable at year five and on each subsequent distribution date. Priced competitively at 4.2% per annum, the junior sukuk is not subject to any step up distribution rate after the call date,” CIMB said in a statement yesterday.

On April 14, CIMB Group also completed the issuance of a RM500mil 5-year medium term note (MTN), to refinance existing credit facilities.

The MTN, rated AA1 by RAM, pays a coupon of 4.2% per annum.

“Both the Junior Sukuk and the MTN received overwhelming responses from investors, with both issuances about three times subscribed. The final pricing of 4.2% per annum for both issuances is very attractive, at approximately KLIBOR + 0.15%. The current market environment remains very conducive for corporate issuers including banks to tap the fixed income markets,” said CIMB Group deputy CEO and treasurer Datuk Lee K Kwan.

CIMB Bank Bhd had earlier secured several US dollar term loan facilities for tenures of three and four years on an unsecured floating rate basis, with all-in pricing of 0.90%-0.98% per annum above LIBOR. The loans will refinance maturing US Dollar liabilities with long term facilities at attractive costs.

Investment banks: Nascent sector looks for new model

Islamic investment banks and companies mushroomed across the Middle East in the years preceding the financial crisis, buoyed by increasing religious sensibilities and the flow of billions of petrodollars into the region.Companies such as The Investment Dar in Kuwait and Bahrain’s Arcapita and Gulf Finance House were among the most profitable institutions in the region and broadened the Islamic finance industry’s geographical footprint and sophistication.
But while most Islamic commercial banks have fared relatively well, the financial crisis caused billions of dollars of losses and exposed severe problems in the business models of many Islamic investment banks.

 Investment banks: Nascent sector looks for new model

Investment banks: Nascent sector looks for new model

Moody’s said in a recent report on the sector: “The speed at which the [sharia-compliant investment banking] model failed was alarming: the most innovative and in-demand concept since the birth of modern Islamic finance around 40 years ago was wiped out in just a few months.

“Despite being a very profitable and robust concept, the … model did not survive its first wave of negative economic cyclicality,” the rating agency said.

The ingredients of the crises were the same at most institutions: mismatches between short-term debt and long-term investments, sector concentration, poor risk management, and a reliance on bulky but volatile mark-to-market investment revenue, rather than diversified, fee-based income streams.

Gulf Finance House, once one of the most prominent Islamic investment companies, went through a selective default on some of its debts after tough negotiations with creditors.

The Investment Dar, which owns part of UK carmaker Aston Martin, has also defaulted and is still locked in protracted talks with its lenders over a repayment plan.

Other Islamic investment companies, including Arcapita and Unicorn Investment Bank, have fared somewhat better, but their liquidity, financial performance and capital base have come under “tremendous pressure”, according to Moody’s.

This has led many bankers and analysts to call for a rethink of how Islamic investment companies operate. “Islamic investment companies have to take a step back and look at what works and what does not in the ‘new normal’,” says a senior Bahrain-based banker. “Catering to regional demand for sharia-compliant investments is clearly a sustainable business model, but how to do that will have to fundamentally change.”

Atif Abdulmalik, chief executive of Arcapita, one of the oldest Islamic investment banks, concedes that the industry has lessons to learn. But he says the “engine needs fine-tuning, not a complete overhaul. The industry deserves much credit. It’s been through an extremely testing situation and, despite its youth, it has done relatively well.”

Other bankers say more extensive surgery is needed. Many Islamic investment banks in the Middle East are in reality little more than speculative real estate investors or private equity funds, financed by Islamic debt obtained from international and regional commercial banks, they say.

After the sector’s problems over the past two years, these banks will be much less willing to extend financing to Islamic investment companies, says the head of Islamic finance at a large international bank.

The future may lie instead with the more full-scale Islamic investment banking model followed by CIMB Islamic in Malaysia, and the investment banking arms of the large Saudi Islamic banks.

These entities largely eschew the proprietary investments and bulky asset management of most Islamic investment companies and resemble more closely the western concept of a full-service investment bank – but backed by a stronger retail bank.

“Thanks to the liquidity made available alongside the parent’s safer funding mix, these investment banking subsidiaries/business lines can more easily weather unexpected ruptures in the economic cycle,” Moody’s noted.

This trend appears to be gathering momentum. Qatar Islamic Bank and Boubyan Bank in Kuwait have recently followed Saudi banks in setting up separate investment banking subsidiaries.

Al Rajhi Capital, for example, is the investment banking subsidiary of Al Rajhi Bank, one of the world’s largest Islamic retail banks, and offers brokerage, asset management, advisory, research, capital markets and underwriting services.

“Having Al Rajhi Bank as our parent company matters, of course,” says Gaurav Shah, chief executive officer of Al Rajhi Capital. “It makes us a strong, quality counterparty.”

The future for some of the investment banks and companies that dominated headlines in the pre-crisis years is more uncertain, says Mohammed Abdulmalik, chief executive of Capivest, a Bahrain-based Islamic investment bank.

“A number are slowly crawling their way out of the mess, and have learnt some lessons, but I think the jury is still out on what the future looks like for some of them,” he says.

“What is clear is that, whatever model emerges from the crisis, it will have to have more than the one line of business.”,s01=1.html#axzz185M1yTKQ

Shariah-Compliant World Fund Launched In Guernsey

Investment manager Argyll Investment Services Limited has launched ‘the World Shariah Funds PCC Limited’, a Guernsey-based suite of Islamic-compliant investments which is to be listed on the Channel Islands Stock Exchange (CISX) and distributed globally.

The World Shariah Funds have brought together three major Islamic investment teams within a single fund structure: From Malaysia, Reliance Asset Management (Malaysia) with USD4.3bn assets under management; the south-east Asian CIMB Principal Asset Management Berhad with USD6.85bn assets under management; and Markaz of Kuwait with USD2.2bn assets under management.

This is the first time they have come together in a single offering and strict criteria have been applied to the selection of the companies whose shares are held within the funds. These specifically exclude, amongst others, companies dealing in alcohol, pornography, tobacco or those with highly leveraged balance sheets. From a ‘basket’ of Shariah-compliant companies, a selection is made of those whose earnings are most likely to exceed the market average and the result is an actively-managed portfolio intended to outperform an Islamic equity index.

Stuart Place, Marketing Director at Argyll, said: “Following the first phase of the world credit crisis investors are more wary of holding heavily indebted companies in their portfolios. The filter process for the World Shariah funds eliminates such businesses as non-compliant under Shariah principles.”

“As the next phase pans out, less leveraged companies will be less dependent on bank finance and should have more robust balance sheets; an attractive proposition in the search for value.”

The Administrator of the World Shariah Funds PCC Limited is Legis Fund Services Limited which has experience of administering Shariah compliant Guernsey open-ended funds. Managing Director Martin Tolcher said: “This fund adds to the Shariah compliant structures we already administer and the overall breadth of fund types under Legis’s administration. There continues to be increased demand for Shariah-compliant investment products, including offshore funds whose portfolios consist of Shariah-compliant securities.”

He added: “This specialist area of fund administration is a growth area for Guernsey. The increased awareness of and desire for these products globally, the presence of the Channel Islands Stock Exchange and Guernsey’s position as a highly reputable jurisdiction are a winning combination.”