Islamic banks 'need mergers to fill in West gap'

Small and medium-sized Islamic banks may need to merge if they want to become bigger regional players capable of filling the funding hole left by shrinking Western banks, the head of Islamic finance at Deutsche Bank, told Reuters.

‘There are mismatch challenges,’ Salah Jaidah said on the sidelines of the Euromoney Islamic finance summit in London.

‘Their size, their appetite for long term funding, their ability to finance at competitive pricing. I see this as a big challenge and not happening already now,’ he added.

Most Islamic banks in the Middle East and North African region hold less than $13 billion in assets. Conventional banks, by comparison, hold an average of $38 billion in assets, a report by Ernst and Young estimated.

In the past, said Jaidah, it was the international banks which led oil and gas development and infrastructure projects in the region because they had the balance sheet, pricing mechanisms and appetite for long term funding.

Whilst Islamic banks might not immediately be able to face the challenge, Jaidah believes that within time they will be able to reposition themselves.

‘They might raise capital, might have more competitive prices and ultimately there might be some mergers between small-to-medium sized banks who want to become bigger players regionally.’

The GCC region has over 100 Islamic banks, ranging from Al Rajhi Bank of Saudi Arabia with a $25 billion market cap to small unlisted lenders, a Deutsche Bank report published in November said.

Deutsche Bank selected a list of potential winners which included Al Rajhi – the world’s largest Islamic bank – and Alinma bank in Saudia Arabia, AMMB Holdings in Malaysia and Bank Mandiri in Indonesia.

The idea of a so-called Islamic ‘mega-bank’ has already been touted in the region by Bahrain-based Al Baraka banking group .

Islamic finance prohibits the lending of money for interest and other activities such as speculation that violate religious principles.

Deutsche Bank, which first established a presence in the UAE in 1999, says that despite the current global economic turmoil there are still opportunities within the industry.

‘With the changes taking place in Mena region and our eagerness to reposition ourselves as a lead player within the industry, I expect that the portion of profit and earnings will be lucrative and will grow year after year,’ said Jaidah.

He sees encouraging signs from Oman, home to around 3 million Muslims, where the central bank last year reversed its secular stance on finance, allowing Islamic banks and subsidiaries to establish themselves in the country.

There might also be new geographic openings in North Africa, following the upheaval in the region and countries such as Turkey where the government plans its first-ever issue of Islamic bonds this year.

Globally, Islamic bond issuance rose to $23.3 billion last year from $13.9 billion in 2010, according to Thomson Reuters data.

On the corporate front, Deutsche Bank, which has advised on deals including Saudi Aramco Total Refining and Petrochemical Company’s (Satorp) $1 billion sukuk also sees more non-Islamic corporates tapping Islamic finance.

South Africa all set to introduce Islamic Bonds

Johannesburg: Plans by South Africa’s National Treasury to introduce Islamic bonds are gaining a strong support in the African country, amid expectations the move would help boost the state’s economy.

“I am sure this was at the request of those Middle Eastern countries because SA has a small Muslim population,” Kokkie Kooyman, head of Sanlam Investment Management told Fin24.

The National Treasury has announced plans to introduce Islamic bonds as part of efforts to get a share of the booming Islamic banking industry.

Other financial instruments planned by the Treasury include Mudarabah, a form of investment partnership between banks and businesses that shares the risk and losses.

There is also Murabah, a transaction in which the bank buys the asset then immediately sells it to the customer at a pre-agreed higher price payable by installments.

The Sharia-compliant Islamic finance is not new to South Africa with different banks and investment companies offering these products. Several banks as the First National Bank and ABSA bank offer Sharia-compliant services.

Kooyman said the Sharia-compliant offerings are worth pursuing because the end result or return is the same as that of conventional banks.“The returns are also not much different for ordinary investors,” he said.Islam forbids Muslims from usury, receiving or paying interest on loans.

Transactions by Islamic banks must be backed by real assets — not shady repackaged subprime mortgages and banks cannot receive or provide funds for anything involving alcohol, gambling, pornography, tobacco, weapons or pork.

Sharia-compliant financing deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships.

Investors have a right to know how their funds are being used, and the sector is overseen by dedicated supervisory boards as well as the usual national regulatory authorities.Analysts opine that offering Islamic bonds will help South Africa lure investments from the Middle East and the Gulf region.

“If people that have been using Islamic banking have been happy all the time, let us have (more) of it,” Steve Meintjes, a senior banking analyst at Imara SP Reid, told Fin24.The banking expert said the introduction of more Islamic finance products into South Africa would enhance the economy.

“The SA economy needs more finance. Islamic banking will enhance the productive capacity of this economy,” Meintjes said.Tom Winterboer, a banking analyst at PwC, noted that Islamic finance products can be accessible to investors beyond the Muslim population.

“It must be a good thing to happen to South African investors. It is a different principle from the domestic finance we have come to know,” Winterboer said, adding, however, that it needed a different expertise.“But South African banks have this expertise.”

Starting almost three decades ago, the Islamic banking industry has made substantial growth and attracted the attention of investors and bankers across the world.

A long list of international institutions, including Citigroup, HSBC and Deutsche Bank, are going into the Islamic banking business.Currently, there are nearly 300 Islamic banks and financial institutions worldwide whose assets are predicted to grow to $1 trillion by 2013.

Islamic bonds – SA makes its move A possible sukuk

In a move that could position SA at the forefront of the global Islamic Sharia law-compliant sukuk (bond) market, national treasury has called on banks to submit proposals for the issue by government of a sukuk.

“A sukuk would create a benchmark for other emerging markets and corporates,” says treasury spokesman Bulelwa Boqwana.

The nature of the possible sukuk has yet to be clarified and banks involved in the tendering process are not permitted to divulge any information.

But a sukuk would differ markedly from a conventional bond. Islamic Finance Resource, an information service, explains that in their purest form sukuk are ownership claims on physical assets.

A sukuk issue would be to domestic and foreign investors and its size dependent on government’s funding requirements, to be unveiled in the next national budget, says Boqwana. That it would be a success seems assured.

“There is a lot of local and foreign interest in it,” she says.

For SA, a sukuk issue would open the door to a source of foreign investment beyond traditional Western funding, finance minister Pravin Gordhan said in a recent speech. Though not on the vast scale of the Western funding machine, the sukuk market is significant, with new issues in 2010 of US$50bn, Ernst & Young (E&Y) says. Sukuk issues hit $63bn in the first nine months of 2011, according to research firm Zawya Sukuk Monitor.

Behind the sukuk market there is also the huge Islamic financial services asset base, which E&Y puts at $1trillion. Deutsche Bank predicts this total could rise to $1,8trillion by 2016 and drive a significant increase in the global sukuk market, which now accounts for a mere 1% of all bonds in issue.

For Gordhan’s strategy to establish SA as the hub for Islamic product development in Africa, a sukuk issue would be a big step forward. But SA cannot afford to drag its feet. Kenya, which has expressed similar ambitions in Africa’s Islamic finance market, aims to issue its first government sukuk in June 2012. A $500m issue is planned.

Also in the running is Nigeria, which is set to issue its first government sukuk within 18 months. Senegal has also expressed interest in tapping into the sukuk market.

Deutsche names new Islamic finance officials

Deutsche Bank has appointed Salah Jaidah as the chairman of Islamic Finance and Ibrahim Qasim as the head of Islamic Finance Structuring.

Ashok Aram, CEO of Deutsche Bank for the Middle East & North Africa, said: “Deutsche Bank is committed to the development of the Islamic Finance industry and will continue expanding its Shari’a compliant product offerings and solutions.

“Salah’s appointment will be instrumental in solidifying Deutsche Bank’s position as a leader in Islamic Finance. He brings key leadership, wealth of experience and deep insight into the Islamic Finance market contributing to Deutsche Bank’s long term commitment to the Islamic Finance industry.

His expertise and relationship in the industry will be key in driving Deutsche Bank’s long term growth plans.”

Salah is a board member of a number of Islamic Finance Institutions in the Middle East and South East Asia and will continue to lead Deutsche Bank´s operations in Qatar as chief country officer and vice chairman for the Mena region.

Aram added: “Ibrahim has contributed significantly to the formation and development of Deutsche Bank’s Mena structuring and Islamic Finance platform over the last five years and brings a wealth of hands-on execution experience across a wide array of Shari’a compliant products and asset classes.

Ibrahim will elevate our focus and drive the commitment to innovate and execute key products, solutions and initiatives in the Islamic Finance space. He will be supported by a strong team of Islamic Finance specialists located in Dubai, Riyadh, Malaysia, London, and Singapore.”

Ibrahim has over nine years of industry experience in structuring and executing transactions in the global capital markets ranging from Sukuk and structured financing solutions to Shari’a compliant investment, risk and liability management products.

Deutsche Bank is committed to working with industry participants and stakeholders to further develop the Islamic financial markets, and to be an industry leader in developing and implementing bespoke Shari’a compliant products and solutions serving Islamic clients globally, said a statement.

Strength, diversity and depth mark winners in daunting market

Deutsche Bank, Standard Chartered Bank and Citi lead the winners in The Asset Triple A Country Awards 2011 in Australia and South Asia as they demonstrated the strength, diversity and depth of their franchises amid the difficult market environment.

In Australia, Deutsche Bank is The Asset’s choice as the best foreign investment bank for the ninth year in a row as it continues to help its clients arrange deals across different product suites. In a year characterized by market volatility, it completed complex transactions such as the acquisition of Axa Asia-Pacific by Axa SA and AMP.

In the equity capital markets, Deutsche Bank created innovative structures to deal with client issues such as the Santos and Origin hybrid transactions and the AUD300 million convertible bonds for Colonial First State.

Barclays Capital continues to exhibit strong M&A credentials with landmark transactions involving BHP Billiton-Petrohawk, the takeover precedent-setting cross-border public transaction involving Qiagen and Cellestis, and the largest Australian company divestment with Centro selling its US portfolio to the Blackstone Group for USD9.4 billion.

Barclays also wins the best debt house award due to product innovation, high quality execution in volatile markets and for innovative capital management the enables its clients to enjoy greater funding flexibility.

Over in India, Deutsche Bank retains the best bank accolade for the fourth consecutive year, while Citi is the best foreign investment bank for the eighth year as it showed the diversity of its franchise in what is one of the most competitive markets in Asia.

Axis Bank also retains the two awards it won last year – best domestic bank and best domestic bond house – as it delivers superior profitability metrics against its peers and consistently gaining market share.

Standard Chartered Bank attains leadership position in India’s debt capital markets, extending comprehensive offerings in both foreign and local currency financing. The bank likewise retains the best M&A house award.

Kotak Investment Banking is again the winner of the best domestic investment bank award for the sixth year in a row, while Bank of America Merrill Lynch snatches the best equity house honour, anchored on its key deals involving Petronas’ USD2.1 billion block trade, Coal India’s USD3.5 billion IPO and Power Finance Corporation’s USD1 billion follow-on offering.

In Pakistan, Standard Chartered Bank displays its commitment to this market with several business initiatives on SMEs, consumer banking, Islamic banking and servicing high net worth banking customers.

Its wholesale banking franchise is noted for its expertise and has a solid track record for innovative transactions. These include the first ever local currency shipping finance transaction for Pakistan National Shipping Corporation amounting to USD120 million equivalent.

Deutsche Bank introduces online zakat settlement in M’sia

KUALA LUMPUR: Deutsche Bank (Malaysia) Bhd (DBMB) has launched an online zakat settlement solution in Malaysia, leveraging on its web-based platform, db direct internet.

A subsidiary of Deutsche Bank AG, DBMB is the first foreign bank to provide an end-to-end Islamic tithe collection solution, which is Shari’ah complaint for the Lembaga Zakat Selangor (LZS), the bank said in a statement on Monday.

Deutsche Bank introduces online zakat settlement in M'sia

Clients can now send and approve their staff zakat deductions where details of payments will be shared online with the LZS, it explained.

“These zakat deductions and settlements can now be processed as part of an organisation’s overall staff payroll and claim process, effected through the bank’s suite of cash management solutions,” it added.

The bank said that this arrangement will ensure enhanced process efficiencies, leading to time and resource savings.

DBMD’s head of Cash Management Corporates, Yusoff Hassan said the service marks a significant milestone for the bank in Malaysia as it continues to introduce Islamic banking products to meet clients’ needs.

The Islamic Banking business in Malaysia is conducted by DBMB through its Islamic banking window and Deutsche Bank AG, an International Islamic Banking Branch.- Bernama