Islamic Finance Industry’s Role Is Growing In Asia : Zeti Akhtar Aziz

Bank Negara Malaysia Governor, Dr Zeti Akhtar Aziz robustly put the case for a growing role of the Islamic finance industry in Asia’s economic growth and development in her Keynote Address to the Wharton Global Alumni Forum, which was held in Jakarta, Indonesia on 22 June 2012. 

Speaking on the theme “Asia in the World: Sustaining the Region’s Transformative Momentum”, Dr Zeti reminded that the rapid integration of Islamic finance into the international financial system is a growing feature in the financial landscape of Asia. “Developments in several emerging economies in Asia have seen the rapid expansion of Islamic finance. Global Islamic financial assets are now estimated to be more than USD1 trillion. While more than 60 percent of the world’s Muslim population is in Asia, the interest in Islamic finance transcends to beyond this community,” she emphasized.

There are more than 600 Islamic financial institutions that operate in more than 75 countries. The sukuk market, advised Governor Zeti, is fast becoming an important platform for international fund raising and investment activities that are generating increased cross-border flows. 

From an outstanding amount of USD33 billion in 2006, the sukuk market has expanded to USD180 billion by the end of 2011, of which 66 per cent originated from Asia. The region is also leading a growing trend for multi-currency sukuk issuances, attracting global investors to participate in this market.

Malaysian and Asian investors subscribed to almost a quarter of the latest sukuk issuance by the Islamic Development Bank (IDB), which was closed in London in mid-June 2012. 

Subscription, according to banks involved in the transaction, was dominated by the MENA region, largely institutional investors from the Gulf Cooperation Council (GCC) countries, which accounted almost three quarter of the allocation. European investors took up 6 per cent of the allocation. 

The USD800 million sukuk was lead managed by CIMB, BNP Paribas, Barwa Bank of Qatar, HSBC, NCB Capital of Saudi Arabia and Standard Chartered Bank, who also acted as joint bookrunners. Al Hilal Bank from Abu Dhabi acted as co-lead manager. According to banks involved in the transaction, the 5-year sukuk, which matures on 26 June 2017, was priced at a profit rate of 1.357 per cent or 40 basis points above the benchmark mid-swap rate.

The order book reached USD900 million, with healthy demand from central banks and regulatory authorities, which received 55 per cent of the allocation, followed by banks with 35 per cent, pension funds and insurance companies with 6 per cent, and fund managers with 4 per cent. The IDB team, led by Vice President for Finance, Abdul Aziz Al-Hinai and encouraged by the interest from the central banks, decided to increase the size to USD800 million from the original target of USD750 million. 

This, despite the impact of tough market conditions as characterized by the on-going Eurozone sovereign debt and bank crisis, the global financial crisis and the low growth economies of the industrialized countries. 

The IDB has issued six sukuk in the international markets between 2003 and 2012 totaling USD3.8 billion.

The attraction of Malaysia as a sukuk origination domicile continues unabated with three more foreign institutions raising or about to raise funds in the ringgit market. 

Bahrain-based Gulf International Bank (GIB) launched its debut RM3.5 billion (USD1.11 billion) Sukuk Al-Wakalah medium-term note (MTN) program at the end of May in Malaysia. 

The Program, which was jointly lead managed by CIMB Investment Bank Berhad and Standard Chartered Saadiq Berhad, was rated AA1 by the Malaysian rating agency, RAM Ratings. In its rating rationale, RAM Ratings declared that GIB’s MTN Program ratings “are underpinned by the strong financial support from its ultimate major shareholder – the government of Saudi Arabia – which indirectly owns 97 per cent of the bank. The ratings also give credence to the bank’s entrenched wholesale-banking franchise within the Gulf Cooperation Council region, robust capitalization levels and healthy liquidity position.” 

In a statement, GIB Chairman Jammaz bin Abdullah Al-Suhaimi emphasized that “the sukuk program represents a strategic move to tap into the ringgit market to diversify funding avenues and currencies for the bank.” 

GIB was encouraged by the investors’ interest in its Program following a recent roadshow to Malaysia. “We are pleased with the interest shown by these investors and expect an issuance of sukuk in the near future when the market conditions are convenient. We will continue to monitor the market in the future to access funding opportunities, and this sukuk program will allow the bank to further diversify its funding base and improve the maturity profile of its liabilities,” stated Dr Yahya A Alyahya, GIB Chief Executive Officer. 

Another GCC originator, Kuwait-based Gulf Investment Corporation (GIC) has mandated AmInvestment Bank as lead manager for its two-tranche RM325m (USD103.2m) sukuk – comprising a 10-year RM170m (USD54m) issuance and a 15-year RM155m (USD 49.2m) issuance. 

GIC also appointed AmIslamic Bank as the transaction agent to facilitate commodity trading on the Bursa Suq Al Sila commodity Murabahah trading platform on Bursa Malaysia. 

This latest issuance is under GIC’s existing 20-year RM3.5bil (USD1.1bil) Sukuk Wakala bi Istithmar medium term notes. 

The 20-year program, according to GIC, will provide the Corporation greater flexibility to issue sukuk of varying tenures of up to 10 years on a ‘need to’ basis from time to time to fund its general working capital requirements. 

Another foreign issuer which is finalizing its debut sukuk in the Malaysian market is the Development Bank of Kazakhstan (DBK), which are 100 per cent owned by the Government of Kazakhstan. 

DBK is working with HSBC and Royal Bank of Scotland (RBS) to manage the ringgit-denominated issuance which will be part of a proposed RM1.5 billion Islamic Medium Term Notes (MTN) Program and which is effectively a quasi-sovereign offering. 

The Development Bank of Kazakhstan (DBK) has already received approval from the Kazakhstan and Malaysian regulatory authorities. 

The Malaysian rating agency, RAM Rating Services Berhad has assigned an ‘AA2’ rating to the proposed DBK RM1.5 billion Sukuk Program.