IslamicFinance.de

Malaysia’s 11 takaful companies should consider merging soon, especially in the general takaful business due to potential limited growth prospects in addition to insurmountable competition especially with the upcoming detariffication of motor and fire insurance in 2016. Apart from new regulatory requirements like the Islamic Financial Services Act 2013 which many companies have difficulties to comply with, takaful products have failed to differentiate itself from conventional insurance products. In addition, limited product offerings by takaful makes conventional insurance more attractive. Nonetheless, other than the regulatory aspects, the synergy offered by a merger would make the company more competitive in addition to having more products to offer.

The domestic Islamic finance asset is expected to continue posting double-digit growth at between 10 per cent to 15 per cent over the next five years, said the Association of Islamic Banking Institutions Malaysia (AIBIM). Products like takaful, will, consumer and corporate products are all maturing and with such maturity level, Islamic finance also grows, said its President Datuk Mohd Redza Shah Abdul Wahid after a briefing on the upcoming Global Islamic Finance Forum (GIFF 2014) here today. GIFF 2014 will be held from September 2 to 4, in Malaysia, discussing key issues in the development of Islamic finance industry. The association today revealed the domestic Islamic finance market share now stands at 24.2 per cent, estimated to be worth RM548 billion.

Malaysia-based International Islamic Liquidity Management Corp (IILM) will raise $790 million through its Islamic bond programme next week, according to a filing with the central bank. The IILM, a consortium of central banks from Asia, the Middle East and Africa, will auction a three-month $390 million sukuk and a six-month $400 million sukuk on Monday Aug. 25. IILM last went to the market in July to re-issue $860 million worth of three-month papers, in order to meet a shortage of highly liquid, investment-grade financial instruments which Islamic banks can trade to manage their short-term funding needs.

Social Islami Bank Limited (SIBL) arranged a Strategic Business Planning Session to evaluate business position and formulate future business strategy of some chosen branches of the bank at its corporate head office in the city recently. Chairman of the Bank Major (Retd.), Dr. Md. Rezaul Haque, was present in the session as the chief guest while Managing Director of the bank, Md. Shafiqur Rahman, presided over the programme.

Malaysia Airports Holdings’ plan to sell perpetual sukuk highlights rising interest in the debt from companies looking to shore up their balance sheets. The manager of all of Malaysia’s 39 airports will hold an investor presentation for the offer on Aug. 25. It will be the nation’s first sale of rated ringgit Islamic bonds with no set maturity following unrated issues by Malaysian Airline System in 2012 and Boustead Holdings in June. Perpetual bonds, which rating companies treat as equity, have been becoming more popular as they allow issuers to raise money without damaging their creditworthiness and offer higher yields to investors. Moreover, it’s more cost efficient because the transaction is tax deductible.

Khazanah Nasional Bhd., Malaysia’s state-owned investment fund, has sold 1.5 billion ringgit ($476 million) of Islamic bonds. The firm priced the five-year debt to yield 4.14 percent, within its earlier guidance of 4.1 percent to 4.18 percent. The issuance is part of a 7 billion ringgit program to raise funds for corporate purposes. Khazanah will issue the new debt via its unit Rantau Abang Capital Bhd. It’s the second time this year that the company has tapped the ringgit sukuk market after selling 15-year securities in March at a coupon of 5.2 percent. Khazanah is in the process of buying up the 30.6 percent stake in Malaysian Airline System that it doesn’t already own.

The Royal Award for Islamic Finance (The Royal Award) Dinner and Award Presentation will be held in Malaysia on 2 September 2014 in conjunction with the Global Islamic Finance Forum 2014 (GIFF 2014). The Royal Award, held once every two years, is spearheaded by Bank Negara Malaysia and Securities Commission Malaysia under the Malaysia International Islamic Financial Centre (MIFC) initiative. The Royal Award recognises and honours an Islamic finance visionary whose achievements and innovation contribute significantly to both the growth of the global economy and social progress of communities around the world. An independent seven-member international jury panel will select the deserving individual for the award.

Investors treat a company’s shares differently depending on the specific types of Islamic bond it issues and the reputation of the Islamic scholars who oversee the instruments, a study by the International Monetary Fund found. About a dozen types of sukuk are in use worldwide. The study found the ijara structure tended to draw a positive reaction from the stock market, with the shares of companies using that structure performing relatively well. By contrast, equity-based structures such as musharaka met a relatively negative reaction. The IMF also looked at other characteristics of sukuk such as their tenors and pricing, but did not find these factors to be statistically significant for the responses of equity market investors.

There are several issues which appear to indicate that Selangor Menteri Besar Tan Sri Abdul Khalid Ibrahim's integrity has been compromised. Shah Alam MP Khalid Samad said he hoped Abdul Khalid will clear the air over several issues, including his out-of-court settlement with Bank Islam over his RM66.67 million debt. Another issue Abdul Khalid is expected to clarify is his claim that he will be suing Permodalan Nasional Berhad (PNB) and will win RM300 million. Khalid also expressed doubts over the awarding of a RM591 million contract to Eco World to build 2,400 affordable houses in Sungai Sering, Ukay Perdana. PKR has been pressuring Abdul Khalid to step down from his position with party president Datuk Seri Dr Wan Azizah Wan Ismail chosen to replace him.

Standard Chartered Saadiq expects 2014 to be good for the Malaysian sukuk industry, driven by the strength of the economy. Chief Executive Officer and Global Head, Consumer Banking, Standard Chartered Saadiq, Wasim Saifi, said the bank is already in discussions with several customers in looking at setting up specific sukuk issuances. Despite expectations of a further hike in Malaysia’s key interest rate, he said it would not hold back issuances, as borrowers are unlikely to defer raising money even if the cost of doing so goes up. Malaysia’s Overnight Policy Rate (OPR) was raised by 25 basis points to 3.25 per cent on July 10, the first increase for the past three years.

Bank Islam Malaysia Bhd, is revising its base financing rate (BFR) to 6.85 per cent per annum from 6.6 per cent per annum effective tomorrow. Bank Islam in a statement today said the revision is in line with Bank Negara Malaysia’s recent move to increase the overnight policy rate (OPR) by 25 basis points to 3.25 per cent. The last revision in Bank Islam’s BFR was on May 16, 2011, when the rate was revised from 6.3 per cent to 6.6 per cent.

Turkish lender Turkiye Finans Katilim Bankasi has raised 800 million ringgit ($252.21 million; Dh922.5 million) from an Islamic bond in Malaysia, its first issuance from a 3 billion ringgit programme announced last month. The issuance by Turkiye Finans, in which Saudi Arabia’s National Commercial Bank is the largest shareholder, is the first ringgit-sukuk done in Malaysia by a Turkish issuer. Proceeds from the five-year sukuk will fund general corporate purposes and working capital requirements, according to HSBC Amanah Malaysia Bhd. HSBC Amanah and Standard Chartered Saadiq Bhd are jointly advising the Turkish bank.

Malaysia-based International Islamic Liquidity Management Corp (IILM) has reissued $860 million of its three-month Islamic bond. The three-month sukuk, rated A-1 by Standard and Poor's, was priced at a yield of 0.52 percent. The issuance was fully subscribed by nine banks acting as primary dealers, including Abu Dhabi Islamic Bank, CIMB and Maybank. IILM last went to the market in May to re-issue $490 million worth of three-month paper, designed to meet a shortage of highly liquid, investment-grade financial instruments which Islamic banks can trade to manage their short-term funding needs. Shareholders of the IILM are the central banks of Indonesia, Kuwait, Luxembourg, Malaysia, Mauritius, Nigeria, Qatar, Turkey and the United Arab Emirates, as well as the Jeddah-based Islamic Development Bank.

Malaysia's largest Islamic bank, Bank Islam Malaysia Bhd, is revising its base financing rate (BFR)to 6.85% per annum from 6.6% per annum effective Friday. Bank Islam in a statement on Thursday said the revision is in line with Bank Negara Malaysia's recent move to increase the overnight policy rate (OPR) by 25 basis points to 3.25%. The last revision in Bank Islam's BFR was on May 16, 2011, when the rate was revised from 6.3 % to 6.6%.

Fitch Ratings has warned that a merger plan by Malaysia’s second largest bank CIMB Group with RHB Capital Bhd and Malaysia Building Society Bhd (MBSB) to create the country’s biggest lender is fraught with risks. Fitch said the merger could weaken capital buffers for CIMB if not funded by sufficient new equity, adding that any move to rationalise branches and staff could be “politically unpalatable”. Furthermore, weakening credit growth and asset-quality pressures in the overall banking system will not make the process any easier. On the other hand, a successful merger would provide a stronger domestic platform from which CIMB’s offshore aspirations could continue to expand.

CIMB Group Holdings Bhd, RHB Capital and Malaysia Building Society (MBSB) have received Bank Negara Malaysia's approval to start merger talks which would result in the creation of a mega Islamic bank. They announced in a joint statement on Thursday that under the corporate exercise, the proposal was to merge the businesses of both RHB and CIMB. The corporate exercise included plans to create an enlarged Islamic banking franchise with MBSB. The three parties have entered into a 90-day exclusivity agreement to negotiate and finalise pricing, structure, and other relevant terms and conditions for a proposed merger.

Turkish lender Turkiye Finans Katilim Bankasi plans to sell 3 billion ringgit ($933 million) of Islamic bonds in Malaysia. The bank will initially raise 800 million ringgit with a five-year sukuk on June 30 which will have an annual return of six percent. Sukuk under the programme will have a tenure of one to 20 years. Funds raised will go towards general corporate purposes. The so-called sukuk murabaha will be issued through TF Varlik Kiralama, a wholly-owned unit of Turkiye Finans. Malaysia's RAM Ratings has accorded the programme an indicative long-term rating of AA3. HSBC Amanah Malaysia and Standard Chartered Saadiq are joint advisers.

Bank Negara Malaysia is issuing two concept papers on Ijarah and Istisna' for public consultation. The concept paper aims to seek feedback from members of the public, Islamic financial institutions and related stakeholders on the Shariah and operational requirements for the application of ijarah and istisna' contracts.

Background
As part of the initiatives to strengthen the Shariah-compliance practices among Islamic financial institutions (IFIs), Bank Negara Malaysia is developing a Shariah-based regulatory policy with the objective to provide a comprehensive guidance to the lslamic financial industry to enhance end-to-end compliance with Shariah and therefore, ensure the integrity and sustainability of the IFI.

Maybank Islamic Bhd is optimistic of up to 12% growth this year, news that bode well for its parent Malayan Banking Bhd’s (Maybank) aspiration of 15% return on equity (ROE) for 2014. Maybank Islamic accounts for 40% of the group’s revenue and profit for the first-quarter ended March 31, 2014 (1Q14). In 1Q14, total income grew 26% to RM1.319 billion. Nevertheless, pretax profit and zakat for the same period dropped 7% to RM315.1 million, mainly due to the increase in the overhead expenses. This was disclosed at Maybank Islamic launch of its MasterCard Ikhwan Card-i, the bank’s first Mastercard offering.

MAA Group Bhd is caught between Bursa Malaysia’s PN17 rules (practice note) – which requires it to buy another business to lift the status – and the Islamic Services Act 2013, which only allows it to buy a financial services company. MAA has been granted an extension of time of up to July 31, 2014 to submit a regularisation plan to the regulator. The firm is now looking at the takaful market of the Philippines to strengthen its insurance business, and possibly pave the way towards exiting its PN17 status. Chief executive officer Muhamad Umar Swift said that MAA seeks a lifting of the PN17 status by virtue of having a takaful business instead of acquiring another business. He said the group has allocated RM177 million for capitalisation and expansion plans for this year, particularly in the takaful business.