Gatehouse Bank eyeing universal banking licence in Malaysia

KUALA LUMPUR (May 29, 2013): London-based Kuwaiti-owned Gatehouse Bank Plc, a syariah-compliant investment bank, is looking to secure principal banking licences in Malaysia after opening a representative office here yesterday, said its senior executive.

The bank is exploring licences in universal banking, investment banking and wealth management.

Its chief representative in Malaysia, Richard Thomas, said the bank will work closely with the local regulators to see what would be the most appropriate licence(s) for the bank here.

"The representative office is very much a first step and it's our intention to develop the bank here," he told reporters at the opening ceremony yesterday, adding that the bank aims to expand its operations here over the next two years.

He said the bank also intends to use its Malaysian office as springboard into other Asian markets such as Singapore and Brunei.

On its targets for the Malaysian market this year, Thomas said it is in the midst of building its key performance indicators.

"Our core strength is in real estate but we are also looking at the sukuk market and Malaysia is of course the largest global sukuk market.

"Cross border reach between London and Kuala Lumpur for developing capital markets is also important for us and wealth management services as well," he added.

He noted that Gatehouse Bank has been approached by two or three parties, but the bank has yet to profile their risk appetites.

He said the Malaysian office would also help global investors understand the Asian market better, especially its global clients who are interested in investing here.

Meanwhile, Gatehouse Bank chairman and interim CEO Fahed Boodai said Malaysia will be a hub for the bank to diversify its client base that are mostly from the Gulf region.

"Our international clients are looking for investment opportunities that promote wealth preservation in mature and stable markets, and responding to their needs on an on going basis remains a core priority for the bank.

"Expanding our global footprint so that the bank can act as a gateway between the Islamic finance markets in Europe, the Gulf Cooperation Council and now Asia is fundamental to achieving this objective and establishing a new base in Malaysia is not only an exciting development for the bank but one that will help to deliver significant longer term value on behalf of our clients," he added.

Fahed also said there is a strong trend among Malaysian investors actively buying in the UK including both institutional and private investors.

The bank expects to make two billion pounds worth of real estate acquisitions in the US and UK markets this year.

Gatehouse Bank specialises in originating, structuring and funding investments in a syariah-compliant manner driven by a real estate strategy. Since its inception in 2008, the bank has established a global portfolio worth in excess of US$1.5 billion spread across real estate assets, capital investments and term deposits.

(The Sun Daily Mail / 29 May 2013)

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Malaysia's Islamic banks ripe for consolidation-Bank Muamalat

KUALA LUMPUR (OCT 18, 2012) : Malaysia's Islamic banks are ready for consolidation as they seek ways to cope with rising operational costs, a top official with Bank Muamalat Malaysia Bhd said, signalling a greater acceptance in US$143.64 billion sector for M&As.

Islamic banks in the past have often been reluctant to merge, in part due to resistance from powerful shareholders who fear a loss of control while strains in global financial markets discourage risk-taking.

Islamic finance has grown in leaps and bounds to account for 23.7% of Malaysia's total banking assets although a major aspect is missing -- the development of megabanks that can issue ground-breaking products in the same way as conventional banks.

"I think consolidation is imminent and we will see a lot of Islamic banks getting together," Bank Muamalat CEO Redza Shah Abdul Wahid told Reuters.

"Costs have risen easily by 20% to 30% mainly due to the shortage of human capital and increased regulatory costs. Margins are falling and the only way to counteract this is to become bigger and more efficient," he added.

Bank Muamalat is now the target of a potential acquisition by financial group Affin Holdings Bhd, which may buy a stake from Khazanah Nasional Bhd and DRB-Hicom Bhd to create the country's fourth largest Islamic bank by assets.

DRB-Hicom holds 70% of Bank Muamalat, while the Khazanah holds the remainder. Affin, which received the greenlight from the Malaysia's central bank to begin negotiations, said the matter will conclude by end-2012.

The combined entity of Affin and Bank Muamalat would elevate both banks to a stronger market position. Affin would grow to the fourth largest Islamic bank by assets from ninth currently, the bank said last month.

"(With consolidation) we would be able to take in all these costs and do bigger deals, I think this is the way forward," Redza said.

DRB-Hicom, controlled by reclusive tycoon Syed Mokhtar Al-Bukhary, purchased a controlling stake in Bank Muamalat in 2008 with a mandate to reduce its holding to 40%.

The company last attempted to divest to Bank Islam Malaysia Bhd and Bahrain-based Al Baraka Islamic Bank.

Bank Muamalat is one of the country's remaining domestic standalone Islamic banks next to Bank Islam Malaysia Bhd, which has retained its leading position in the market.

(The Sun Daily / 19 Oct 2012)

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Malaysia: Islamic banks urged to be sympathetic to house buyers

KUALA LUMPUR: Islamic banking players have been urged to be sympathetic to house buyers of abandoned projects and not burden them with debt as it may lead to bankruptcy.

Malaysian Muslim Consumers Association (PPIM) financial services monitoring bureau chief, Sheikh Abdul Kareem Said Khadaied said many house buyers face legal action filed by Islamic banking players demanding high payment for uncompleted houses.

Sheikh Abdul Kareem, who was the third panel member, said as an Islamic entity, banks should think of problems faced by Muslim consumers and the officers should discretion to help the house buyers.

PPIM activist Shirazdeen Adam Shah served as forum moderator with Bank Islam Malaysia Bhd sharia division head, Ustaz Mohd Nadzri Chik as second panel member and Bank Muamalat Malaysia Bhd former chief executive officer, Datuk Abdul Manap Abdul Wahab as fourth panel member.

First panel member was Dr Nuarrual Hilal Md Dahlan, director of Institute for Governance and Innovation Study, Universiti Utara Malaysia (UUM)

.

Nurrual said Bank Negara should improve Islamic banking to benefit consumers, especially buyers of houses in abandoned projects.

The government should compel all private developers to complete the houses and sell them by including warranty insurance to avoid problems.

He also urged consumers to buy from government developers like Syarikat Perumahan Nasional Berhad (SPNB) to avoid the risk of bankruptcy.

(Borneo Post Online / 15 Oct 2012)

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Islamic banks' market share grows in Malaysia

Malaysia's Islamic banks gained a slightly larger share of total assets in the banking system in the first seven months of 2012, said the government in an annual economic report published on Friday.

Islamic banks accounted for 24.2 percent or 69.5 billion ringgit of the country's total banking assets as at end-July, up from 23.7 percent at the end of last year.

Total assets grew at a faster rate of 20.6 percent between January to July, compared to 15.4 percent in the same period last year.

The Islamic banks' deposits amounted to 362.7 billion ringgit at the end of July, increasing the share of total deposits to 26.1 percent from 25.8 percent at the end of last year.

Islamic financing accounted for 26.6 percent of total loans at the end of July, compared with 25.9 percent at the end of last year.

The household sector accounted for over two-thirds of loans made through Islamic financing.

Islamic financing is expected to account for 40 percent of total financing by 2020 due to greater participation and more diverse offerings, under the financial sector blueprint prepared by the central bank.

The Islamic capital market, consisting of equities compliant to sharia or Islamic law, improved its share of total trade volume to 66.8 percent from 59.1 percent last year.

"This market has contributed significantly to the development of the overall capital market, it remains an important alternative source for the raising of capital," said the report.

The share of sharia-compliant equities was unchanged at end-July, accounting for 65 percent, or 931 billion ringgit, of the total market capitalization.

Malaysia retained its pole position in the issuance of Islamic bonds, or sukuk, with a 71 percent share of global issuances, and it accounted for 68 percent of sukuk outstanding globally as at end-July.

The takaful industry increased its assets to 18.3 billion ringgit, or 9 percent of total insurance assets in the seven months, with nearly 80 percent concentrated in fixed income and government securities.

(Reuters / 28 Sep 2012)

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Islamic banks sacrifice returns for liquidity – Experts

A recent Islamic Finance Industry Leaders Round Table Discussion has pointed out that as Islamic banks are generally more liquid than their conventional counterparts, Islamic banks end up earning lower returns on short-term investments.

The forum, hosted by KPMG Sri Lanka and addressed by Neil Miller, KPMG’s Global Head of Islamic Financial Services who is an International expert in the field of Islamic Finance however highlighted that this is because there are fewer short term liquidity management options available to them to manage their surplus liquidity.

The round table discussion, while comparing Islamic finance in other countries, interestingly commented on the role of tea as a commodity and the role it could play on Murabaha based treasury placements.

The forum considered the viability of using tea as an alternate commodity that Sri Lankan Islamic Finance institutions could rely on in substitution to the metal used by London or Palm oil used in Malaysia. This was followed by a detailed discussion with regards to Sukuk and different means of structuring different types of sukuk such as Sukuk al Ijara and Sukuk al Mudaraba.

“Another issue highlighted was that while conventional banks can manage their surplus liquidity by transferring funds to interest-yielding accounts with Central Banks (even on an overnight basis), most Central Banks do not offer any Shari-a compliant returns to Islamic Banks on a similar basis. It was also pointed out that an investment other than on a short term basis can create a mismatch in the maturity profile of an Islamic bank’s assets and liabilities thus exposing the bank to a greater risk. The forum also noted that most of the Islamic Finance institutions in Sri Lanka were only engaged in issuing Murabaha, Mudaraba, Ijara and Diminishing Musharaka,” a participant at this conference told The Nation.

The participant, who did not wish to be quoted, said that another key matter discussed was the treasury placement issues for Islamic banks.

KPMG Sri Lanka hosted a CEO and Islamic Finance Industry Leaders Round Table Discussion on Friday t September 7, at the KPMG premises in Colombo. 

The event had commenced with a presentation by Miller covering the areas of money market instruments, financing and capital market product, consumer financing and government notes for Islamic Finance. This was followed by an interactive discussion with the audience on the status of the development of Islamic Financial services in Sri Lanka; where the industry peers pointed out the issues pertaining to the lack of investment opportunities facing Islamic financing institutions in the country.

Miller then spoke on how, many of the banks in Sri Lanka are engaged in issuing conventional credit cards and then went on to enlighten the audience as to the mechanisms of structuring different Shari’a compliant credit card structures such as Bai Al’Inah (Buy back finance based), Tawarruk (Cash finance based), Ijara (Lease based), Ujrah (Fee based) and Kafalah (Guarentee fee based).

KPMG is a recognized global leader in Islamic Finance and has been named ‘Best Islamic Assurance and Advisory Services Provider’ in the Euromoney Islamic finance awards for five consecutive years. 

(The Nation / 16 Sep 2012)

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Malaysia reforms could aid Islamic banks in rural areas

KUALA LUMPUR/DUBAI, Aug 24 (Reuters) - Financial reforms in Malaysia could spur the growth of the country's Islamic banks by giving them more opportunity to tap into rural areas, which have a greater proportion of Muslims than urban centres. But concerns about profitability may slow the expansion.

The central bank issued new agent banking guidelines this month that expand a pilot programme allowing lenders to offer basic financial services through non-bank retail outlets.

"It will be a cost-effective channel for financial institutions to reach out to the underserved parts of the population, particularly those in rural areas," said central bank governor Zeti Akhtar Aziz.

The guidelines list 474 rural districts, or mukims, which can be serviced through the initiative; some of them have the highest proportions of Muslims in the country, and also the lowest average household incomes. This could give Islamic banking an important role in the government's efforts to expand financial services to the poorest sections of the population.

The populations of the Malaysian states of Kedah, Kelantan, Perlis and Terengganu are on average 89.3 percent Muslim, much higher than 46.4 percent for the capital Kuala Lumpur, data from the Malaysian Department of Statistics shows. Those same four states hold 40 percent of the mukims that could be reached through the new agent banking programme.

Malaysia's Islamic banks collectively held 19 percent of the country's banking assets as of June, according to central bank data.

The agent banking scheme originally started as a pilot programme in 2010 with participation from Maybank, RHB Bank and government-owned Bank Simpanan Nasional - all conventional lenders with sharia-compliant offerings. The pilot currently serves over 65 percent of the mukims identified in the guidelines, against 46 percent at the end of 2011, according to the central bank.

At present the combined network consists of 2,322 agents who have handled more than a million transactions worth over 190 million ringgit ($61 million) since the pilot began. No data is available on how many transactions were sharia-compliant.

The prospects for tapping new Muslim consumers appear healthy; RHB's Islamic business has been growing at an average rate of 20 percent compared to 8 percent for its conventional business, according to Abdul Rani Lebai Jaffar, chief executive of RHB Islamic, part of the RHB group.

PROFITABILITY

The relative poverty of some of the mukims involved in the agent banking scheme may deter banks from expanding into them aggressively, however.

Expansion will depend on whether banks choose to create separate task forces to manage larger groups of agent relationships, Jaffar said.

"We currently have a very small number of agents operating under the programme, but it has shown a positive response," he said. "For now, we are still leveraging on the bigger RHB network."

Executives at other banks said they would be cautious. "We are looking into the guidelines to see what kind of role we can play," said a senior official at Maybank, who asked not to be named under briefing rules.

"We have always striven to use all the distribution channels that are available to us, but I think we have a pretty good reach at this stage. For now it will be business as usual."

Foreign banks in Malaysia will tend to remain focused on urban areas which have proven to be more profitable, said Wasim Saifi, chief executive of Standard Chartered Saadiq, the Islamic arm of Standard Chartered Malaysia.

At present the agent scheme is outside the bank's scope of operations, but it will consider the scheme in the long term, Saifi added. "There is a lot of value in getting our distribution to reach more local areas. It would certainly be a great opportunity, and going forward it is something we will have to look at.

(Reuter / 24 August 2012)

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Malaysia: Affin Holdings eyes stake in Bank Muamalat Malaysia

ANALYSTS have mixed views on Affin Holdings Bhd's surprise plan to buy a stake in Bank Muamalat Malaysia Bhd, one of the country's two standalone Islamic banks.

While they note that the move could strengthen Affin's foothold in the Islamic banking sector, they also don't see much synergies being derived.

Details remain scant as negotiations with Bank Muamalat's two shareholders - DRB-HICOM Bhd and Khazanah Nasional Bhd - are at an early stage.

Two days ago, Bank Negara Malaysia (BNM) gave all parties involved its permission to start the acquisition talks, which must be completed by year-end.

Talks are expected to gain momentum after the Hari Raya festive period.

Assuming a full acquisition, Affin's total assets will widen by 36 per cent to RM77 billion while its gross loan base will increase by 30 per cent. 

However, this is not expected to change the group's market ranking. Affin is the second smallest of eight banking groups in the country in terms of assets and loans.

"We see the potential acquisition of Bank Muamalat as an expansion in size and an overlap in Islamic consumer financing. Affin's strength is in Islamic consumer financing, particularly in residential property loans and hire purchase. 

"With Bank Muamalat's relatively smaller loan size, we believe that revenue synergies will be limited. Bank Muamalat in the past had high gross impaired loan ratios," banking analyst Kelvin Ong of MIDF Research said in a report yesterday.

The ratio has improved to 4.7 per cent as of March this year from a high of 8.7 per cent in December 2008, but the acquisition may result in a rise in collective assessment charge, he noted.

Ong kept his "buy" call on Affin's stock, which rose by 7 sen, or 2 per cent, yesterday to RM3.55, suggesting a potential 15.5 per cent upside from his target price of RM4.10. 

Some one million shares changed hands, triple the previous day's volume.

Bank Muamalat's strength lies in consumer financing and while it is also involved in commercial, corporate and investment banking, growth in these areas remain unexciting.

Its revenue is domestically driven and the bulk of its loans comes from residential property - they comprise about a quarter of its smallish loan base of RM9.4 billion as at end-March - and hire purchase.

"Judging from the loan book, Bank Muamalat appears to be a complementary fit for Affin, given its focus on household lending. But there does not appear to be much benefit from the funding aspect, given that Bank Muamalat's CASA (current account, savings account) ratio is quite close to Affin's," RHB Research analyst David Chong noted.

Affin's plan to buy a stake in Bank Muamalat came as a surprise to some analysts, given that it had long indicated its intention to expand regionally rather than domestically.

As early as June, it had said it was still keen on pursuing an earlier plan to buy a controlling interest in Indonesia's PT Bank Ina Perdana, but was awaiting Indonesian authorities' long-awaited new rules on shareholding limits.

Indonesia has since said single ownership in its banks will be restricted to 40 per cent, which may have put paid to Affin's Indonesian ambitions.

Still, Bank Muamalat may be attractive for Affin, given both banks' ambitions to venture into Islamic banking in China.

Bank Muamalat had last month formed a strategic collaboration with China's Bank of Shi Zui Shan in the hopes that it will have a part in the Chinese lender's plans to set up the country's first Islamic bank in the Ningxia province - where some 30 million Muslims are concentrated - in two years.

For now, it has taken on the costs for training some of the Chinese lender's staff in Islamic banking.

"We believe that Bank Muamalat's upcoming venture into China is complementary to Affin's strategic business direction, given that Affin has recently announced that it is collaborating with Bank of East Asia Ltd (BEA), to set up Islamic banking operations in China in the latter part of this year," said Alliance Research banking analyst Cheah King Yoong, who kept a "strong buy" call on Affin with a target price of RM4.42.

BEA holds a 23.5 per cent stake in Affin.

Still, pricing will be the key as to whether a sale to Affin will go through.

Tan Sri Syed Mokhtar Al-Bukhary's DRB-HICOM, which owns 70 per cent of Bank Muamalat, had twice before attempted to pare its stake - to Bank Islam Malaysia Bhd last year and to Bahrain-based Islamic lender Al Baraka before that - but was unsuccessful. 

BNM in 2008 allowed DRB-HICOM to buy the 70 per cent stake in Bank Muamalat on condition that it would eventually sell it down to 40 per cent.

Some analysts reckon that if Affin's offer is attractive enough, DRB-HICOM may give up its entire stake as the conglomerate seeks to pare down its debt.

Affin may also end up owning the smaller lender in its entirety as Khazanah, which holds the remaining 30 per cent stake, is on a mission to divest all non-core investments.

MIDF Research is not expecting Bank Muamalat to come cheap.

"Although Bank Muamalat is not listed, we do not expect it to come cheap. We believe that the PBV ratio for the acquisition will be around 1.5 times," Ong said.

Alliance's Cheah noted that one stumbling block to a deal being done could be the low return-on-equity (ROE) of Bank Muamalat, which stood at just six per cent for the financial year ended March 2012, as compared to Affin's ROE of 9.4 per cent in its last financial year.

Meanwhile, Affin late yesterday reported a 27.7 per cent rise in net profit to RM306.9 million for the first half of the year on the back of higher lending and fee-based income.

Its chairman Tan Sri Mohd Zahidi Zainuddin said in a statement that he expects the group to maintain its earnings momentum in the second half.

Bloomberg data shows that of the eight analysts who track Affin, five have "buy" calls on the stock, two are "neutral" and one with "sell". 

Affin's shares have climbed 15.2 per cent so far this year, outdoing the benchmark index's 7.8 per cent gain.

(Business Times / 18 August 2012)

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