Islamic Finance Malaysia

Friday, 28 December 2012

Islamic banking and finance to continue growth in 2013

KUALA LUMPUR: Islamic banking and finance is likely to continue its growth trajectory next year despite the outlook of a challenging year ahead and the slowdown in global economy.
The robust achievement recorded throughout the year coupled with the “safe-haven investment” sentiment among investors will be the main reasons for the industry to remain favourable.
In the Economic Report 2012/2013 by the Ministry of Finance, the Islamic banking business was stated to have continued to expand in the first seven months of this year with total assets increasing 20.6% to RM469.5 billion, representing 24.2% of the country’s banking system’s assets.
In 2011, it expanded by 24.1% to RM436.1 billion, reflecting 23.7% of the total banking system assets.
RHB Islamic Bank Bhd Managing Director Abdul Rani Lebai Jaafar said Islamic finance in Malaysia was ready to move on to the next stage and compete more aggressively in the global financial market.
He said Islamic finance seemed to have been also equally accepted by both Muslims and non-Muslims due to continuous awareness programmes and customer experience.
He, however, said 2013 could be a challenging year as the issue of “funding versus financing” has remained within the industry where the question of sourcing for funds to generate financing from very limited resources locally needs to be addressed.
Among the challenges will be the limited number of trained and knowledgeable Islamic bankers available in the market to cater for the growing segment.
Although several Islamic banking learning centres such as Islamic Banking and Finance Institute Malaysia (IBFIM) and International Center for Education in Islamic Finance (INCEIF), have been set up by the authorities and training programmes held for fresh graduates by the industry players to tackle the problem, more concerted efforts are needed, Abdul Rani said.
INCEIF Chair of Islamic Finance Prof Dr Abbas Mirakhor said the authorities must have a strong commitment in a way that appeals to a pluralistic society to ensure progress for Islamic finance.
“It must be framed, communicated and explained to the society in a way that all segments of the society will understand its benefits and no segment is threatened by either the commitment or the progress,” he said, adding that innovation in products would be also important.
“Malaysia is seen to be in the driver’s seat when it comes to Islamic Banking. Innovation is a key factor to push Islamic banking to a higher level.”
New framework
Meanwhile, the new legal framework for Islamic banking and takaful, which is now at the final stages of the enactment process, would be one of the key drivers for the industry movement.
Bank Negara Governor Dr Zeti Akhtar Aziz (photo) said the new law, which will be effective next year, would bring certainty to the legal and regulatory treatment of Islamic financial transactions by providing legal recognition to the contractual requirements in accordance with the Syariah.
“This provides a comprehensive legal environment under which effective risk and profit sharing activities can take place, encompassing all aspects of Islamic financial transactions,” she had said at the Islamic Development Bank Regional Lecture Series on Islamic Economics, Finance and Banking in Jakarta recently.
Abdul Rani said if the new act takes effect next year, the outcome would further drive the Islamic finance into greater stability in the midst of continued innovations and globalisation of Islamic finance.
“The new act would potentially provide the industry greater legal certainties in conducting business given Islamic finance development has extended beyond borders; and has interlinkages with various segments of the financial market and real economy.”
On sukuk, RAM Rating Services Bhd Head of the Islamic Finance Ratings Zakariya Othman said Malaysia has built a successful track record as a hub for Islamic finance transactions given its strong legal and regulatory framework that provides a sound foundation.
This coupled with an increased demand for sukuk from investors has spurred the growth of the Malaysian sukuk market.
“Malaysia still dominates the market with a share of 74 per cent of global sukuk issuance as at end-September 2012 and the trend looks set to continue moving forward.
“The significant demand for sukuk has been spurred by the high levels of surplus savings and reserves in Asia, which will further boost the prospects of the burgeoning sukuk market in Malaysia,” Zakariya Othman said.
On the global outlook, Zeti said the vibrant private sector investment, coupled with ongoing government projects will support the growth of sukuk next year.
“We expect the sukuk market to continue to remain on its growth trajectory.”
Sukuk issuances in Malaysia amounted to RM219.4 billion during the first eight months of 2012 against RM120.7 billion in the corresponding period of 2011, contributed in part by the largest issuance to date of RM30.6 billion by Projek Lebuhraya Usahasama Bhd.

(F M T News / 27 Dec 2012)

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Tuesday, 11 December 2012

Malaysia: Islamic finance industry sets talent target

KUALA LUMPUR: Malaysia needs talents to fill 35,000 Islamic finance vacancies by 2030 to cope with the rapid growth of the industry, said Islamic Banking and Finance Institute (IBFIM) CEO Datuk Dr Adnan Alias.
He said the institute planned to provide training in Islamic finance to meet the growing needs of the industry. “IBFIM is proud to see such great take up for certified qualification in Islamic Finance and specialised certification programmes and a high level of talent as can be seen from the programmes’ assessment results,” he said in during IBFIM’s inaugural certification ceremony yesterday.
Adnan awarded certificates to 300 certified holders in various programmes in IBFIM including Islamic Financial Planning, Certified Credit Professional – Islamic and Associate Qualification in Islamic Finance.
In addition, seven outstanding certified holders who excelled in the examinations received special “highest achiever awards”.
IBFIM also presented the “Islamic Finance Talent Development Champion Awards,” to RHB Bank BhdMalayan Banking BhdMalaysia Building Society Bhd and Public Bank Bhd.
The institute launched its Network of Islamic Finance Training Institutes , which links institutes involved in talent development in Islamic finance, globally.
Adnan said 15 international Islamic finance institutes had been granted approval to participate in IBFIM’s programmes and was on the look out for more institutions to do so.
(The Star Online / 10 Dec 2012)

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Friday, 7 December 2012

Malaysia: Refinancing fuels record sukuk, firms take advantage of low yields to raise RM91b from bonds

KUALA LUMPUR: Malaysian companies are taking advantage of all-time low yields to refinance local-currency sukuk, accounting for 55% of 2012's record issuance.
Average costs for 15-year top-rated corporate debt fell 48 basis points this year to 4.6%, according to a Bank Negara index. Of the RM91bil of syariah-compliant securities issued in 2012, RM50bil was for refinancing, data compiled by Bloomberg show. Sime Darby Bhd, the world's biggest palm-oil producer, sold RM700mil of Islamic bonds on Nov 28 as part of a restructuring, pricing the portion due in 2027 at 4.35%.
The drop in yields is also making it cheaper for firms to retire short-term bonds and sell longer maturities after the premium on 10-year sukuk over those maturing in 2014 narrowed 19 basis points to 47 basis points this year. More companies are planning to sell Islamic notes in 2013 to lock in the lower funding costs, according to Maybank Investment Bank Bhd, the leading arranger this year.
“Our pipeline on bond and sukuk refinancing looks healthy,” Tengku Datuk Zafrul Tengku Abdul Aziz, head of Maybank's investment banking unit, said in a Dec 1 interview. “A number of our refinancing transactions are looking to price by the end of 2012. Companies are seeking cost-efficient funding and an extension of debt maturities to achieve cost savings.”
The Government sold its first 15-year ringgit-denominated syariah-compliant bonds in June, paying a coupon rate of 3.899%, which has helped set a benchmark for Malaysian companies, Badlisyah Abdul Ghani, chief executive officer of CIMB Islamic Bank Bhd, said in a Dec 3 interview. The notes yielded 3.84% today.
The Bloomberg-AIBIM Bursa Malaysia Corporate Index, which tracks 57 ringgit-denominated issues, rose to a record 102.1137 yesterday and has gained 3.6% since it started in February. Yields on bonds ratedBBB, the second-lowest investment grade at Malaysian Rating Corp (MARC), dropped 60 basis points, or 0.60 percentage point, to 15.06% this year, a separate Bank Negara gauge shows.
UEM Land Bhd, a state-owned property firm, plans to sell as much as RM2bil of Islamic bonds to repay debt and to redeem convertible shares, according to a Dec 3 e-mailed statement from MARC. MNRB Holdings Bhd, a reinsurance firm, said in an Oct 15 stock-exchange filing that it aimed to offer RM150mil of sukuk for refinancing.
UEM Group Bhd set the ball rolling in January by issuing RM30.7bil of sukuk, the world's single-biggest Islamic offering, to pay off existing debt and to fund the takeover of PLUS Bhd, the nation's largest highway operator. Power producer Malakoff Bhd sold RM9.3bil of syariah-compliant securities, while telecommunications provider Axiata Group Bhd and state-owned investment firm Johor Corp raised RM5bil and RM3bil respectively, for refinancing.
Sime, rated the highest investment grade of AAA by RAM Rating Services Bhd, also sold 10-year syariah-compliant bonds to yield 3.98% in November. Proceeds will “largely be used for refinancing and restructuring to longer-tenor debt,” Tong Poh Keow, chief financial officer, said in a Nov 30 interview in Kuala Lumpur.
“The sale will help us better manage cash flows and will also result in interest savings,” Tong said, declining to be more specific. “If market conditions continue to be favourable, we may consider selling sukuk again.”
Average yields on global Islamic bonds rose nine basis points to 2.85% in the first three days of this week after reaching a record low of 2.76% on Nov 30, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index. The difference between the average and the London interbank offered rate, or Libor, widened 10 basis points to 194 basis points, the highest level since Oct 12.
The notes returned 9.2% in 2012, according to HSBC, while debt in developing markets climbed 17.9%, JPMorgan Chase & Co's EMBI Global Composite Index shows.
Yields on Malaysia's 3.928% dollar Islamic bonds maturing in 2015 decreased one basis point to an all-time low of 1.3% yesterday, according to data compiled by Bloomberg. The difference in borrowing costs between Dubai's 6.396% securities due in November 2014 and Malaysia's debt was little changed at a record 88 basis points.
Declining syariah-compliant bond yields have also spurred a surge in new issues worldwide. Offerings climbed 22% to an unprecedented US$44.9bil, from the US$36.7bil sold in all of 2011, data compiled byBloomberg show.
Foreign investors raised holdings of Malaysian local-currency debt by 29% in October from a year earlier to a record RM221.9bil, surpassing the RM215.5bil reached at the end of September, according to data published on the central bank's website. They cut ownership of corporate bonds including sukuk to RM13.5bil from RM14.8bil.
“Longer-dated Islamic debt appeal to pension funds and insurance companies as they match their investment criteria,” CIMB Islamic's Badlisyah said.

(The Star Online / 07 Dec 2012)

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Malaysia: New legal framework for Islamic banking, takaful being enacted

JOHOR BAHARU: The new legal framework for Islamic banking and takaful is currently undergoing the legislative process towards its enactment, Bank Negara Malaysia Governor Tan Sri Dr Zeti Akhtar Aziz said.
She said the new legal framework would not only streamline the legal requirements across sectors but would also ensure that the law was reflective of the nature and features of Shariah contracts.
It would also ensure that the degree of regulation would commensurate with level of risks that Islamic financial institutions, markets and products pose to the overall financial sytem, Zeti said.
"The greater clarity on the legal and prudential requirements underpinned by Shariah principles will enable participants of the Islamic financial system to align to their practices and expectations accordingly when undertaking Islamic financial business and transactions," she said.
She was delivering her keynote address at the last day of the Eighth World Islamic Economic Forum (WIEF) here.
Zeti said while Islamic finance practitioners and scholars continued to draw from the source of fiqh muamalat to create new and innovative instruments, the legal framework needed to be further strengthened to ensure alignment with new market developments.
This is to ensure that it continued to lend certainty and predictability to innovative products and financial transactions, she said.

(The Star Online / 06 Dec 2012)

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Thursday, 6 December 2012

Call for harmonised Islamic financial reporting

KUALA LUMPUR: A new report by the Association of Chartered Certified Accountants (ACCA) and KPMG has called for standard setters and Islamic banks to work together to harmonise financial reporting.
ACCA said the rapid global growth in Islamic finance meant that it must be reported in a way that was harmonised and more consistent.
“The report calls on the International Accounting Standards Board (IASB) and the Islamic finance industry to work together to develop guidance, standards and educate the investor community on key issues,” it said in a statement.
“IASB should consider issuing guidance on the application of International Financial Reporting Standards (IFRS) when accounting for certain Islamic financial products which are offered by Islamic financial institutions and conventional banks.”
ACCA said they should also consider issuing guidance on additional disclosures that could be made for stakeholders who were seeking information on the entity's syariah-compliant operations.
“The industry needs to engage more with local regulators to understand their expectations of financial reporting and the disclosure of Islamic financial instruments,” it said.
ACCA head of international development Aziz Tayyebi said the key challenge faced by Islamic finance and global standards setters was how to resolve the fact that Islamic finance institutes (IFIs) in different countries reported transactions in different ways.
“If they are to remain competitive with conventional counterparts, their financial reports need to be comparable. This will involve a great deal of work and education, but should be beneficial for IFIs and those who rely on their reports,” he added.

(The Star Online / 05 Dec 2012)

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