Maybank Posts Record Profit as Islamic Banking Income, Fees Grow

Malayan Banking Bhd. (MAY), Malaysia’s biggest lender, said third-quarter profit rose 16 percent, joining Public Bank Bhd. in posting record earnings as economic growth spurred credit demand.

Maybank Posts Record Profit as Islamic Banking Income, Fees Grow

Maybank Posts Record Profit as Islamic Banking Income, Fees Grow

Net income climbed to 1.75 billion ringgit ($545 million), or 20.05 sen per share, in the three months ended Sept. 30 from 1.5 billion ringgit, or 19.14 sen per share, a year earlier, the lender said in a stock exchange filing today. Fee income and Islamic banking boosted profit.

Maybank has been Malaysia’s top arranger of syndicated loans and number one underwriter for equity and rights offerings this year, according to data compiled by Bloomberg. It has helped manage some of the country’s biggest initial public offerings of the year, including share sales by UMW Oil & Gas Corp. and Westports Holdings Bhd.

“There continue to remain windows of opportunity in the different markets we serve,” Chief Executive Officer Abdul Farid Alias said in a separate e-mailed statement today. “Maybank’s three home markets consisting of Malaysia, Singapore and Indonesia, which contribute more than 90 percent of the group’s income and profit, are expected to record positive revenue growth.”

The lender benefitted from 5 percent growth in Southeast Asia’s third-largest economy last quarter, which spurred demand for credit.

Non-interest income rose 19 percent to 1.54 billion ringgit in the third quarter last year, Maybank said. Income from Islamic banking increased 29 percent to 734.9 million ringgit.

Interest Income

Shares of Maybank advanced 0.8 percent to 9.64 ringgit as of 3:26 p.m. in Kuala Lumpur after earnings were announced during the midday break. The stock has climbed 4.8 percent this year, trailing a 6.2 percent gain in the benchmark FTSE Bursa Malaysia KLCI Index.
Net interest income, or revenue from borrowers after deducting interest paid to depositors, gained 1.1 percent to 2.38 billion ringgit in the third quarter, Maybank said. Allowances for losses on loans more than tripled to 280.3 million ringgit, it said.
To contact the reporter on this story: Chong Pooi Koon in Kuala Lumpur at [email protected]
To contact the editor responsible for this story: Chitra Somayaji at [email protected]

http://www.bloomberg.com/news/2013-11-21/maybank-posts-record-profit-as-islamic-banking-income-fees-grow.html

Is the rise of Islamic finance good news for the environment?

Economic and ethical focus of fast expanding Islamic banks could be good news for green investments

By Nilima Choudhury

The growing Islamic finance sector could spell good news for investments in clean energy according to experts RTCC has spoken to.

Islamic finance is growing 50% faster than the traditional banking sector, and it has huge growth potential, with assets expected to increase by 250% this year.

Its profile was boosted last week when UK Prime Minister David Cameron told the World Islamic Economic Forum he wanted the country to be the “first western sovereign to issue an Islamic bond”.

Is the rise of Islamic finance good news for the environment?

Is the rise of Islamic finance good news for the environment?

In an interview with RTCC, Professor Habib Ahmed, a World Bank author and Professor in Islamic law and finance at the University of Durham said the principles and values on which Islamic finance is based could contribute to sustainable economic development.

“There is an increasing demand from different stakeholders that Islamic finance should also reflect the ethical, social and environmental aspects in their financing,” he said.

“Many non-Muslims are attracted to Islamic finance because they find it sound from economic and ethical perspectives.”

This could be positive news for the clean energy sector that in 2012 suffered a 14% drop in investment as Europe curbed green subsidies and the USA’s attention was diverted from renewables to fracking.

Last month analysts at Bloomberg New Energy Finance reported that annual investment in renewables and energy-smart technologies will fall for the second consecutive year.

Emerging sector

There are already signs the clean-tech sector is starting to benefit from Islamic finance.

The Islamic Development Bank (IsDB) is already a major player in the clean energy sector investments of around $1 billion between 2010-2012.

The top five beneficiary countries of IsDB’s renewable energy sector financing were Morocco ($908 million), Pakistan ($896 million), Egypt ($886 million), Tunisia ($764 million) and Syria ($668 million).

Last month the IsDB agreed a $100 million investment with the Industrial Development Bank of Turkey for the development of renewable energy and energy efficiency projects.

On a wider scale, a report by Ernst & Young published in December 2012 valued Islamic assets at about $1.8 trillion in 2011, representing about 1% of the global financial market.

Green shoots

Some analysts believe Islamic finance will be good for the environment because it values more than just profits.

Western banks are required by law to provide the best return on investment for their clients regardless of where that investment goes.

But according to Asad Zaman from the International Institute of Islamic Economics in Pakistan, while green growth in the west is secondary to economic growth, this is not the case in Islamic financial circles.

“Natural resources are a sacred trust and protecting them for future generations a primary responsibility,” he said.

“Economic growth is not (directly) a goal at all, though it may be desirable as a means to (say) poverty alleviation.”

It’s a view shared by the heir to the British throne Prince Charles, who recently said Islamic banking could provide the answers where conventional banking could not, given Islam’s emphasis on a “moral economy”.

Where large Western banks have divested from oil and gas, it has generally taken place not because of ‘green’ reasons, but as a result of long term investment planning.

“Scottish Widows divested from these [fossil fuel] companies not on ethical grounds but because we think they’re not a very good investment decision. That view is shared very widely in the investment community,” said the bank’s head of sustainability Craig Mackenzie.

New investment model

The Islamic financial structure is so attractive that the UK Treasury is now investing about £200 million to work on the practicalities of issuing “sukuk”, or Islamic law compliant bonds in the country.

Sukuk bonds do not pay interest, but instead offers the investor a share of ownership in the project they are supporting.

In order to develop an environmentally friendly sector financed by Islamic banks, the Green Sukuk Working Group was launched last year by think tanks Climate Bonds Initiative, NGO Clean Energy Business Council of the Middle East and North Africa and the Gulf Bond & Sukuk Association.

“Interest in both Shari’ah compliant and ethical investing is on the rise. Green sukuks can support this trend by expanding the range of available financial instruments,” said the GBSA’s Michael Grifferty at the group’s launch.

“Green sukuks also support national development strategies by offering longer term finance for essential infrastructure.”

The group aims to develop best practices and promote the issuance of sukuks for the financing of climate change investments and projects, such as renewable energy projects.

Banks like UK-based Islamic investment bank Gatehouse Bank offer people the opportunity to invest in sustainable companies that offer technology, products and services throughout the water industry to help with water desalination, a burgeoning sector in the Middle East.

According to Professor Ahmed, the Islamic financial sector’s growth is likely to continue because it has proven to withstand events like the 2008 global financial crisis.

“After the crisis, Islamic finance came to light because it had features that would have lessened the intensity of the crisis,” he said.

Social responsibility

A paper published in July this year by the International Institute for Sustainable Development (IISD) argues that increasing levels of debt in the ‘West’ will make Islamic banking a safer bet for many investors.

“Islamic finance principles serve to insulate the Islamic financial system from excessive leverage, speculation and uncertainty, which in turn contributes toward promoting financial stability and long-term sustainability,” the authors say.

“As a result, the implementation of Islamic finance principles is anticipated to grow, not only in Muslim countries’ financial markets, but also in those markets concerned with socially responsible objectives and ethical financial solutions.”

Muhammad bin Ibrahim, the Central Bank of Malaysia’s deputy governor, argued earlier this month that it was an Islamic bank’s duty to “enhance the general welfare of society.”

“The teachings of Islam basically promote preservation of natural resources and the need to respect all living things. Failure to do so would be detrimental…where severe destruction of the land and sea would come upon those who mistreat the environment,” said Ibrahim.

There are, of course, plenty of examples of Islamic banks lending to oil and gas companies. Money based in Saudi Arabia and Qatar is, in all likelihood, derived from the extraction of fossil fuels.

But the rapid growth of a financial sector underpinned with strong ethical and environmental leanings indicates that the damage investments may do to the planet may come under increasing scrutiny.

Ahmed argues that currently there is little sign of a “green” culture in the Islamic financial sector, perhaps not a surprise given its relatively small size.

But he says there is a debate among bankers over what the sector’s role should be moving forward, and how it can be a force for the global good.

“As the industry moves forward it will be expected that they consider social and environmental issues as the values on which Islamic finance is based on [these] demands,” he said.

http://www.rtcc.org/2013/11/05/is-the-rise-of-islamic-finance-good-news-for-the-environment/

Business Bermuda at Islamic finance event

Business Bermuda promoted the Island’s commitment to growing its Islamic finance sector at the inaugural Islamic Financial News European Forum held in London.

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At the event, which was held last week and endorsed by the London Stock Exchange, investors discussed Bermuda’s offering of an attractive, politically neutral and familiar platform to Western investors and managers, access for conventional finance and fund structures seeking alternative asset classes in emerging markets, such as Islamic finance, geographic and product diversification; and access a wider asset class and global investor base.

More than 650 people attended the event, which included a presentation by Peter Hughes, group director of Apex Fund Services, on Bermuda’s role in the growth of the Islamic finance industry.

Mr Hughes also hosted a panel discussion on Bermuda as an Islamic finance hub. Bermuda recently signed its 25th Tax Information Exchange Agreement (TIEA) with the Republic of Indonesia, providing for a full exchange of information on criminal and civil tax matters between the two countries. In recent years Bermuda has been strengthening its position as the jurisdiction of choice for the Shariah-compliant international financial services industry.

Indonesia, the world’s third largest democracy, is a key member of the Asia-Pacific Group of 20 and home to the world’s largest Muslim population, who will now have improved access to Bermuda’s blue chip, international finance centre.

Bermuda companies and trusts are now regularly used by financiers in Bermuda for Islamic finance transactions as institutions have developed a wide range of techniques using offshore vehicles which allow them to uphold religious and legal principles whilst enabling them to offer viable financial products. Bermuda’s regulatory structure already provides mechanisms, which cater to the specific requirements of Shariah-compliant services such as takaful and retakaful structures and mutual fund structures.

Cheryl Packwood, CEO of Business Bermuda, said: “I am delighted that Bermuda has signed this TIEA with the Republic of Indonesia. This treaty is a significant step forward in cementing political and economic ties between the two countries. Business Bermuda continues to actively market Bermuda as a financial centre for international business and as the offshore jurisdiction of choice for Islamic finance.”

Mr Hughes said: “Bermuda is in an excellent position to support firms seeking to invest in Shariah compliant products, especially since regulations and laws form the foundation of our world-class financial services industry, making Bermuda well regulated, transparent and fully compliant. The global market for Islamic finance and insurance will continue to grow, opening exciting possibilities for Bermuda-based companies.”

http://www.indianmuslimobserver.com/2011/07/business-bermuda-at-islamic-finance.html

 

Islamic Stock Market Investment

Islamic investments have found their footing in the global stock exchanges by offering Shariah indexes and ETF’s. Mufti AHMED SULIMAN and YUSUF MOOLA discuss their features.

Investment in the stock exchange is not exclusive to any one state or country. The global trend has shown that stock market investments play a significant role in the economy. A good economic state of affairs leads to a boom in the stock market while a poor state of affairs sends the stock market crashing.

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Setting the scene

The purchase of an ordinary share in a larger business is referred to as a Musharakah (partnership). Upon acquisition of the share one becomes a partner in the business.
There may be two scenarios here:
a. The company has liquid and illiquid assets
b. The company only has liquid assets (cash).

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QIB receives best Islamic bank award

DOHA: Qatar Islamic Bank (QIB) has been recognised as the Best Islamic Bank in Qatar for the year 2010 at the Islamic Finance News awards held recently in Dubai.

The Acting Chief Executive Officer (CEO) of QIB, Ahmad Meshari said: “I believe it reflects our commitment to the customers and stakeholders to position ourselves as one of the leading Islamic Banks, not only amongst the financial institutions to be found in Qatar, but regionally and across the entire world.

“We have been developing Islamic banking in Qatar for over 28 years and this award reflects a strategy focused on offering first rate service at all our branches and affiliates which has been built up over the years under the supervision and guidance of the board of directors led by H E Sheikh Jassim bin Hamad bin Jabr Al Thani,” Meshari said.

The annual Islamic Finance news Best Bank Poll, established in 2006, recognises the best providers of Islamic financial services across a series of markets and sectors as voted by the readers of Islamic Finance news. Islamic finance issuers, investors, non-banking financial intermediaries and government bodies from around the world are invited to participate by casting their votes. A panel of experts from non-competing organisations then sieve through all submissions during the elimination process until just one transaction in each category remains and is thus awarded the winner of that category.

http://www.thepeninsulaqatar.com/business-news/151013-qib-receives-best-islamic-bank-award.html

 

Islamic Finance to Reduce Fiscal Deficit in India

At a time when economic recovery needs more stimuli by the Government of India (GoI), there is also an urgent need to safeguard the economy from the debt trap because the GDP growth rate fell to 6.7% in 2008-09 from 9% in 2007-08; the debt servicing reached 58.83% of the total expenditure for the year 2008-09. It means maximum receipts are now spent for debt servicing which accounted for 15.87% of the Gross Domestic Product (GDP), while the debt receipts were 9.78% of the GDP in 2008-09. Even the interest payments were 21.39% of the total expenditures by GoI and 5.77% of the GDP in 2008-09. Notably the revenue deficit in 2008-09 is already 30% due to high debt serving ratio to total revenue expenditure.

In an attempt to find the actual reasons behind the high fiscal deficit, it is observed that the increased debt receipts by GoI to finance revenue expenditures (especially high debt servicing); increased subsidies on food, fuel and fertilizer; and rural development through schemes like NREGS, farmer’s loan waiving scheme and Sarva Shiksha Abhiyan are the three most important factors of high fiscal deficit. Since there is a need for more stimuli to counter recession in the economy, it is expected that the plan expenditures may further increase whereas due to recession, the revenue receipts may decline. This decrease in revenue receipts and increase in plan expenditure may increase the fiscal deficit to an unwanted high level. Working upon different options to reduce the fiscal deficit, it is found that Islamic finance can reduce the fiscal deficit even if revenue receipts decline and plan expenditures increase.

Islamic financial products have a great role to play in reducing the fiscal deficit in emerging economies by replacing the debt based investments for infrastructure with funds mobilized through equity based Government Securities for infrastructure projects. Let’s see how Islamic finance may help us reduce our present fiscal deficit.

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Notably the total revenue expenditure is 142.92% of total revenue receipts reflecting 30.03% revenue deficits. The major cause of this high revenue deficit is high debt service ratio to total revenue expenditures. For a developing economy like India, in the proposed plan we project increasing capital expenditures, but in the revised estimates of 2008-09 budget, the revenue expenditure is 89% and the capital expenditure is just 11% of total expenditure; all due to high debt servicing ratio (66%) to total revenue expenditure. Notably the interest payment alone is 24% of total revenue expenditures. So, with capital expenditure being as low as just 11% of total expenditure and debt serving being as high as 59% of total expenditure, how can we go about planning to foster inclusive growth?

Debt Finances crossed the Planned Estimates:

The debt based finances for investments under 11th five year plan document was proposed to be 48.42% of total receipts for 2008-09, whereas the revised budget estimates reveal that the debt receipts were 96.38% of total capital receipts in 2008-09. This reflects our inability to mobilize targeted amount of non debt receipts, causing high fiscal deficit due to interest payments over borrowed debt receipts.

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According to 11th plan documents, projected investments in 2008-09 should be of Rs. 321,579 crores while total plan capital expenditure in the revised budget observed just Rs. 41,301 crores. So the plan capital expenditure is just 12.84% of targeted investment in 2008-09. This shows our inefficiency to make budget development pro inclusive growth and to foster growth. So, it is better that GoI reduce debt borrowings which ultimately increases revenue deficits; and shift the focus on infrastructure investments to stimulate the economy at a time when GDP growth rates and employment growth rates are falling.

Actual Debt Receipts are 210% of the planned Estimates:

Since the revised estimates on debt receipts (Rs. 326,515 Crores) is already 210% of estimated requirements of debts (Rs. 1,55,704 Crores) by year 2008-09 as projected in 11th five year plan documents, the GoI should seriously think about this increased debt receipts. The funds utilized for debt servicing (Rs. 530,010 Crores) are already 162% of debt receipts to finance fiscal deficit (Rs. 3.26.515 Crores), the GoI should revisit its budgeting. How good is it to increase the debt receipts at a time when Indian industries are looking for more affordable credits from banks to meet the challenges after the global meltdown?

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In year 2008-09 the deficit budget cost an amount of Rs. 192,694 crores to GoI which was paid as interest over the debt receipts borrowed to finance the deficit budget. This may be called as loss to GoI because had there been equity based receipts against debt receipts, GoI would have saved this amount.

Financing Fiscal Deficit through subsidized bank loans is not good

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