ISLAMIC FINANCE AWARDS: NEW STRUCTURES, NEW MARKETS

ANNUAL AWARDS: BEST ISLAMIC FINANCIAL INSTITUTIONS 2014

Islamic finance is going mainstream, with new banks opening and new regulatory endeavors under way in this dynamic global market.

Sovereign sukuks in Western countries; structured financing deals involving both conventional and Islamic tranches; and cross-border sukuks between the Middle East and Malaysia, symbolizing greater convergence in an industry that has been divided by tensions between the Middle East and Asia over sukuk rules: Is Islamic finance finally going mainstream?

Islamic assets (those designed to uphold shariah law, and thus fundamental Islamic principles) now stand at more than $1.8 trillion globally and are growing at a rate of 16% year-on-year. Last year also saw new issuances in the sukuk (Islamic debt) market exceed the $100 billion mark. According to Kuwait Finance House’s 2014 Islamic Finance Outlook, total assets under management by Islamic funds reached $72.5 billion on 20 December 2013, and global gross takaful (insurance) contributions were expected to reach $19.3 billion at the end of last year.

So, yes, to a certain extent, Islamic finance has gone mainstream. There has been rapid growth in long-standing Islamic financial markets—Malaysia, Indonesia, the GCC countries—and there are now a wider range of markets in Asia and, increasingly, Africa that are making their first forays into Islamic finance. A number of African countries are dipping their toes in the waters to finance much-needed infrastructure and growth of their economies and banking sector, and although Islamic finance still faces enormous political and economic challenges in the Arab Spring countries, it continues to provide a vital source of financing in these markets, particularly for small and medium-size enterprises (SMEs).

Profitability, risk management and liquidity remain challenges for Islamic banks, however, and other than the United Kingdom, markets in Europe have been slow to embrace Islamic finance, although Kuveyt Türk, a subsidiary of Kuwait Finance House, will open a German Islamic bank this year.

The seventh annual Global Finance Islamic Financial Institutions Awards honor the leading shariah-compliant institutions in the regions, countries and product areas in which Islamic banking has an established or growing presence. The awards criteria incorporated a range of subjective and objective factors, including customer service, growth in assets, profitability, geographic reach, strategic relationships, new business development, innovation in products and banks’ financial stability.

The selected winners represent best-in-class Islamic financial institutions that not only stand out in terms of financial performance, profitability, market share and assets but that also continue to innovate and strive for greater operational efficiency through enhanced risk management and technology gains. In some markets, they may be the only Islamic financial institution, but as pioneers they are setting the standard for others to follow. They are also leaders in their home markets who are also expanding globally in order to drive growth and sustain future profitability.

GLOBAL WINNERS
Best Sukuk Bank	HSBC
Best Islamic Retail Bank	Jordan Islamic Bank
Best Islamic Private Bank	NCB Capital
Best Islamic Investment Bank	CIMB Investment Bank Berhad
Best Islamic Custodian	Deutsche Bank
Best Takaful (Insurance) Provider	Etiqa Takaful Berhad
Best Retakaful Provider	ACR ReTakaful
Best Ijarah (Leasing) Provider	Kuwait Finance House
Best Asset Management Company	CIMB-Principal Islamic Asset Management
Best Shariah-Compliant Index Provider	Thomson Reuters
Best Law Firm with Islamic Services	Allen & Overy
Best Islamic Project Finance Provider	Boubyan Bank
Best Islamic Commodities Provider	Standard Chartered Saadiq
Best Islamic Real Estate Finance Provider	QInvest
Best Islamic Fund Manager	Al Rajhi Capital
Best Up-and-Comer	Amãna Bank

 

Islamic Finance Deal of the Year
Al Bayan Group Sukuk Wakalah Program of up to 1 billion Malaysian Ringgit
Joint Principal Advisers	Hong Leong Islamic Bank Berhad, HSBC Amanah Malaysia Berhad

 

REGIONAL WINNERS
Gulf Cooperation Council (GCC)	Al Rajhi Bank
Non-GCC Middle East/North Africa:	Al Baraka Bank
Asia	Maybank Islamic Berhad
Europe	Bank of London and the Middle East

 

COUNTRY WINNERS
Afghanistan	Afghan United Bank
Algeria	Banque Albaraka D’Algérie
Azerbaijan	Kauthar Bank
Bahrain	Al Baraka Bahrain
Bangladesh	Islami Bank Bangladesh
Brunei	Bank Islam Brunei Darussalam
Egypt	Faisal Islamic Bank of Egypt
Gambia	Arab Gambian Islamic Bank
Indonesia	Bank Muamalat Indonesia
Jordan	Jordan Islamic Bank
Kazakhstan	Al Hilal Islamic Bank
Kenya	First Community Bank
Kuwait	Kuwait Finance House
Lebanon	Al Baraka Lebanon
Malaysia	Maybank Islamic Berhad
Mauritania	Banque Al-Wava Mauritanienne Islamique
Morocco	Attijariwafa
Nigeria	Jaiz Bank
Oman	BankMuscat Meethaq
Pakistan	Meezan Bank
Palestine	Palestine Islamic Bank
Philippines	Al-Amanah Islamic Investment Bank of the Philippines
Qatar	Barwa Bank
Saudi Arabia	National Commercial Bank
Senegal	Banque Islamique du Senegal
Singapore	Maybank Singapore Islamic Banking
South Africa	Al Baraka Islamic Bank
Sri Lanka	Amãna Bank
Sudan	Faisal Islamic Bank of Sudan
Turkey	Kuveyt Türk
Thailand	Islamic Bank of Thailand
UAE	Abu Dhabi Islamic Bank
United Kingdom	Bank of London and the Middle East
United States	American Finance House Lariba
Yemen	Tadhamon International Islamic Bank

 

GLOBAL WINNERS

HSBC was the lead underwriter for Islamic bonds with 110 deals, according to Bloomberg data, giving it a market share of just over 16%. It also led underwriter league tables for international sukuk, with the volume of deals in 2013 totaling $2.6 billion. HSBC was appointed external adviser, alongside law firm Linklaters, to help the UK Treasury structure its inaugural sovereign sukuk.

Pioneers of Islamic banking in Jordan, JIB said it had the highest return on shareholders’ equity after tax (18.6%) of all banks in the country last year. On the retail banking side nonprofit, free-of-interest current accounts grew about 10% in 2013, and on-demand accounts grew by 20%. Retail leasing ending with ownership financing grew by a healthy 25% ($448.7 million). Gross profit from debit and credit cards jumped by 45% and real estate financing revenues grew by 35%, or $25.2 million.

The investment banking arm of Islamic finance pioneer National Commercial Bank is well known and respected for its expertise in Islamic mutual funds both within the Saudi market and further afield. NCB Capital boasts one million clients and $12 billion in assets under management.

CIMB Investment Bank Berhad took the top spots in RAM Rating’s league tables for both sukuk and conventional private debt securities in 2013. The investment bank arranged 37% of the 75.5 billion Malaysian ringgit ($23 billion) of RAM-rated PDS and sukuk in 2013. It also took pole position for arranging the most sukuk (by program value) of 11 billion ringgit ($3 billion), or 31.3% of the sukuk rated by RAM.

Deutsche Bank’s Trust & Securities Services business plays a leading role in Islamic finance to clients it serves in the Middle East/ North Africa region and Asia. It works with a number of leading Islamic asset managers and funds. In 2010 the bank received an Islamic banking license from Bank Negara Malaysia.

Takaful is growing rapidly in regions such as the GCC, Malaysia and Indonesia. In its 2013 Global Takaful Insights, Ernst & Young predicts that improved customer understanding and pricing could enhance shareholder value for Malaysian takaful operators. Etiqa Takaful Berhad, which is a subsidiary of Maybank, offers a wide range of Islamic takaful products (general, family, motor).

Compared to takaful providers, there are only a handful of retakaful companies globally. ACR ReTakaful says it is the world’s highest-capitalized Islamic reinsurance entity. A joint venture between ACR Capital Holdings, Khazanah Nasional Berhad and the Dubai Group, it has paid-up capital of $300 million and boasts operations across the Middle East and Asia.

Ijarah is one of the most widely used constructs in Islamic finance. Typically, an Islamic finance provider buys an asset, then the customer pays for it in installments via a “lease to own.” KFH applied this concept to a card, Baytik Ijarah, marking what it called “a new era in card finance” providing greater credit flexibility and capacity.

CIMB-Principal Islamic is a joint venture between leading Malaysian bank CIMB and Principal Global Investors. CIMB Islamic is a leading provider of Islamic financial services in the Asean region, and Principal boasts substantial expertise in asset management. The combined entity manages global and Asian mandates for a variety of asset classes and is the investment manager for a range of innovative Islamic funds.

Thomson Reuters’ Islamic indexes cover a wide range of key investment regions and markets like the Malaysian and global sukuk markets. The firm differentiates itself based on its research-based approach to shariah-compliant screening of stocks.

Allen & Overy is part of the UK “magic circle” of law firms. In Bloomberg’s 2013 Islamic Legal League Tables, Allen & Overy finished top of the table for Islamic bonds issuer advisers, based on volume with a market share of 22% and volume of deals amounting to $3.8 billion.

With the conventional project financing expertise of its major shareholder, National Bank of Kuwait, to draw upon, Boubyan Bank has participated in some noteworthy deals and demonstrated that Islamic financing can devise innovative structures to finance major projects. Alongside NBK, Boubyan led a group of banks that arranged a 48 million Kuwaiti dinar ($170 million) syndicated facility to finance a new oil gathering center in western Kuwait. The deal involved both Islamic and conventional tranches, with the Islamic tranche arranged and managed by Boubyan Bank in partnership with United Bank and Warba Bank.

Standard Chartered Saadiq boasts a range of shariah-compliant commodity hedging solutions, including structured solutions like swaps and options. With price volatility being a major concern for commodity traders, the Islamic bank offers a range of commodity risk management tools.

In 2013, Qinvest underwent a strategic refocusing that will see it concentrate on the financing aspects of principal investment, while reducing risk. The principal investment team’s real estate franchise continues to deliver strong results and will concentrate on prime real estate transactions in the GCC, Europe and the United States.

Riyadh-based Al Rajhi Capital manages approximately $7 billion in assets, making it one of the largest fund managers in the Saudi kingdom. In the past 12 months, its mutual funds assets under management grew by 27%. Last year saw Al Rajhi Capital successfully close its second real estate income-generating fund.

As the first bank in Sri Lanka licensed to conduct operations Islamically, Amãna Bank has performed remarkably well in a short amount of time. Since its opening in August 2011, the bank has recorded 188% growth in customer advances and 70% growth in customer deposits. The momentum accelerated in 2013, with growth of more than 2.8 billion Sri Lankan rupees ($21 million) in customer advances and more than 2.6 billion rupees in deposits.

Hong Leong Islamic Bank Berhad (HLISB) was appointed as the Joint Principal Adviser, together with HSBC Amanah Malaysia Berhad (HBMS). The two banks were also joint lead managers alongside Kenanga Investment Bank Berhad and Al Hilal Bank (appointed joint lead manager in the UAE only). The deal marked the first time that a Saudi corporate used the Malaysian sukuk market to raise funds—a milestone in cross-border sukuk. “It points towards a greater convergence in the industry that has been divided by tensions between the Middle East and Asia over sukuk rules,” noted Hong Leong Islamic Bank. As the underlying assets to the transaction (land parcels owned by Al Bayan’s subsidiaries) were not situated in Malaysia, the risk was mitigated by appointing Al Bayan as investment manager to manage the underlying assets and to collect the rental proceeds from the leases. Sukuk holders were protected by an “irrevocable kafalah (guarantee),” with Al Bayan guaranteeing full payment of the profit amount.

REGIONAL WINNERS

One of the largest Islamic banks in Saudi Arabia and the world, Al Rajhi’s fundamentals continue to impress. Total assets in 2013 reached 279 billion Saudi riyals ($719 million). Al Rajhi is one of Saudi Arabia’s fastest-growing and most progressive Islamic banks and boasts the largest branch network in the kingdom.

Few Islamic banks boast the footprint of Al Baraka, which continues to invest in its operations in politically and economically challenging markets in North Africa and the Middle East, including Lebanon, Syria, Algeria and Egypt. Despite market volatility and the difficult operating environment, Al Baraka consistently grew assets and deposits and provided much-needed financing, particularly for SMEs.

Maybank Islamic Berhad is the largest Islamic bank in Asean, based on total assets and market share. Outside its core Malaysian market, it boasts operations in Singapore and Indonesia and is applauded for its shariah governance and risk management framework.

The UK continues to carry the torch for Islamic banking in Western democracies—as reflected by its plans to issue a sovereign sukuk in the near future. BLME, based in London, is the largest European shariah-compliant bank in terms of capital, balance sheet and profit, with a balance sheet in excess of £1.2 billion ($2 billion).

COUNTRY WINNERS

Afghan United Bank was reportedly the first bank to obtain permission for Islamic banking from the Afghanistan central bank. Islamic banking is still relatively new in the country, and Afghan United Bank says it is preparing for its conversion into a fully-fledged Islamic bank. In the meantime, all branches offer Islamic banking services, and it operates an Islamic window in Kabul, where the bank offers commercial and investment banking services.

Part of the Al Baraka group, which has an extensive footprint throughout the Middle East and North Africa, Banque Albaraka D’Algérie was the country’s first Islamic bank. As part of a five-year strategy, Al Baraka Algeria will be investing significantly its Algerian operations. Four new branches are scheduled to open this year, bringing its branch network up to a total of 30, with plans to increase that to 50 by 2018. Further expansion of the bank’s ATM network is planned, and it will also introduce SMS and e-banking.

Azerbaijan is reportedly working on a draft Islamic banking law, according to Reuters. Islamic banking has been slow to develop in the country, despite its large Muslim population. Currently, Islamic financial services are offered through “windows,” but the idea of the legislation is to pave the way for fully-fledged Islamic banks. Kauthar Bank (formerly Universal Bank) was the first bank in the country to operate according to Islamic principles. Its product range, according to its website, includes mudaraba and musharaka (partnerships) and ijara financing.

Al Baraka Bahrain benefits from the financially strong position of the parent company, the Al Baraka Group. The Bahrain bank saw total assets increase by 20% to $863 million in 2013, thanks to significant expansion of its mudaraba portfolio. Total operating income for the year reached $20 million, a 10% increase on 2012. The bank continues to expand the range of financing options for Bahraini’s and expatriates.

Islamic finance makes up approximately a fifth of the total Bangladesh banking sector, the country’s central bank governor, Atiur Rahman, reportedly stated in April. Bangladesh was a beneficiary of the growth in Islamic finance assets and deposits that followed the 2008 global financial crisis. As the first Islamic bank in Southeast Asia, Islami Bank has a long tradition of promoting financing according to shariah principles. It offers a range of deposit, investment and rural development products.

The majority government-owned bank is the largest Islamic bank in Brunei. Other investors in the bank include Dubai Islamic investment firm Fajr Capital, which has a minority stake. Last year saw the bank further consolidate its market position in such key financial product areas as mortgages, deposits, auto financing and consumer lending. The bank has embraced digital banking with the introduction of banking and payment services via smartphones, a move that helped boost corporate and SME uptake of online banking.

The overthrow of Muslim Brotherhood president Mohamed Morsi saw plans for a sovereign sukuk and the development of an Islamic finance regime put on hold. However, borrowers in the country are increasingly turning to Islamic finance to raise financing for projects, and as the first Islamic commercial bank in the country, Faisal Islamic Bank is well positioned to take advantage of that growth. Despite a difficult domestic environment, the bank continues to grow its profitability, income and earnings per share.

AGIB was set up to provide Gambia’s large Muslim population with shariah-compliant financial services. So far it is the only institution in the country that provides such services. Its product range includes murabaha and mudaraba profit-sharing contracts, as well as ijara and musharaka (partnership financing). Nigeria’s Finbank acquired a controlling interest in AGIB in 2008.

Indonesia is a rapid growth market for Islamic finance, with Islamic assets predicted to grow to $100 billion plus by 2018, according to the World Islamic Banking Competitiveness Report 2013-2014, published by Ernst & Young. Bank Muamalat maintains a strong domestic Islamic franchise. Last year stock market declines saw the bank delay its $177 million IPO. As yet, no new date has been announced.

JIB is a subsidiary of the Al Baraka Banking Group and is the largest Islamic bank in the country, based on assets. The bank has a sound funding base comprising a diversified mix of deposits. Net income after tax grew by 24% in 2013 to reach $63.6 million.

The first Islamic bank to be established in Kazakhstan, Al Hilal is a 100%-owned subsidiary of Abu Dhabi’s Al Hilal Bank. Having attained its Islamic banking license in 2010, the bank continues to strive to raise the profile of Islamic banking in a country where more than 40% of the population is Muslim.

First Community Bank was the first bank approved by the central bank to operate as a fully-fledged shariah-compliant institution. The bank, which is owned by local business people, has opened 17 branches and plans to expand into other East African countries. It offers a wide range of financing solutions as well as sukuk and takaful.

Kuwait’s largest Islamic bank is firmly entrenched in the domestic market and has successfully executed its strategy for regional and international expansion. It boasts a substantial distribution network and a strong funding profile. KFH has restructured and streamlined its business and strengthened its risk management. It boasts a strong and diversified deposit base across retail and corporate banking and has participated in some landmark Islamic deals, including a $1.5 billion ijarah sukuk for the Turkish treasury. KFH continues to set the pace for innovation in deposit products, including investment deposits via ATM machines.

Economic conditions in Lebanon remain challenging, given the political tensions in the region and the influx of refugees from Syria. Against an uncertain and volatile backdrop Al Baraka Bank saw its assets grow by 19% to $357 million. Total operating income fell by 6% on 2012 levels, but the bank continues to move forward with plans to stimulate growth, including efforts to promote shariah-compliant financing for SMEs and entrepreneurs.

With 114 billion ringgit ($35 billion) in total assets, Maybank Islamic Berhad leads peer rankings of Islamic banks, according to RAM Ratings. The bank also leads rankings of Islamic banks by gross financing, customer deposits and shareholder’s funds, says
RAM Ratings.

Banque Al Wava Mauritanienne Islamique was established in September 1985 under the name of Al Baraka Mauritanian Islamic Bank. The bank sees itself playing a key role in the country’s economic development by providing financing for SMEs, trade and manufacturing.

There are no fully fledged Islamic banks in Morocco, although a draft bill regarding Islamic finance was announced in 2013. Attijariwafa, Morocco’s largest private bank, was the first to create an Islamic subsidiary, Dar Assafaa, and recent reports suggest it will boost its subsidiary—including its capital base—once the Islamic finance bill passes Parliament.

Jaiz Bank estimates that half of Nigeria’s 155 million population are seeking Islamic financial services, and Jaiz is working to meet their needs. The bank offers what it calls noninterest financing for home and auto purchases.

BankMuscat’s Meethaq Islamic window has assembled a wide range of shariah-compliant products in a short time. It recently signed an agreement with Al Madina Takaful, Oman’s first takaful company, to provide insurance products (takaful) for Meethaq customers. It issued the country’s first Islamic credit card and has announced plans to issue a dual-currency sukuk (US dollar and riyal) worth approximately $300 million.

Meezan was Pakistan’s first Islamic bank. Noor Financial Investment Company, which holds a 49.1% stake in Meezan, announced plans late last year to sell its majority stake. Meezan is currently doing its due diligence on HSBC Pakistan’s operations, which it is looking to acquire and convert into an Islamic bank.

According to a 2012 report by Awraq Investments, Palestine Islamic Bank saw its market share increase from 3.9% in 2008 to more than 5% in 2011. According to the report, the bank “witnessed a remarkable increase in return on equity from 3.8% in 2010 to 8.7% in 2011, due to its impressive increase in net income, which grew from $1.6 million to $4.4 million” in the same period.

Al-Amanah is the only Islamic bank in the Philippines and is owned by the Development Bank of the Philippines. It provide products to service the needs of Philippines’ Muslim community. According to Kuwait Finance House, the government intends to privatize the Islamic bank, and DBP is in the process of preparing a package for divestment of its 99.88% stake in Al-Amanah.

Calling itself “the fastest growing bank in Qatar,” Barwa Bank saw 2013 net profits climb by 46% to 503.9 million Qatari riyals ($138 million). The bank says it remains committed to the development of its most important asset, human capital, and paid testament to the increasing “Qatarization” of the bank with the appointment of Khalid Al Subeai as acting CEO in March. Subeai was a former senior financial advisor at Qatar Petroleum.

Saudi Arabia’s largest lender, NCB recently placed a local currency sukuk to boost its Tier 2 capital. According to NCB, the sukuk marks the largest issuance by a financial institution in the Kingdom of Saudi Arabia and the largest-ever subordinated debt instrument issued by a financial institution in the MENA region. 

Senegal is positioning itself as a hub for Islamic financing in West Africa and has announced plans to launch a sovereign sukuk. Banque Islamic du Senegal’s majority shareholder is the Islamic Corporation for the Development of the Private Sector, the private sector arm of the Islamic Development Bank.

Last year Maybank, the largest Islamic bank in Asean, launched new shariah-compliant products in Singapore for commercial, industrial and residential properties. The products will facilitate Singaporean investment in Malaysian property.

Despite a slowdown in the rate of economic growth last year, Al Baraka saw total assets for 2013 increase by 19% to 4.4 billion South African rand ($419 million). Asset growth benefited from the bank’s continuing success in financing. The bank also designed a new shariah-compliant contract locally to facilitate FX retail trading.

Amãna Bank is the first bank in the country to align itself with shariah-compliant principles. Having only commenced operations in 2011, the bank already boasts more than 100,000 customers and a network comprising 23 branches and more than 500 ATMs. Its shareholders include Bank Islam Malaysia Berhad, the Islamic Development Bank and AB Bank in Bangladesh.

Faisal Islamic Bank Sudan has a 13.6% market share of local banking deposits and 32 branches covering most states. In March last year, the bank introduced 24-hour automated banking services to facilitate the paying of bills, acceptance of checks and purchasing of services such as electricity and mobile-phone recharging.

A subsidiary of Kuwait Finance House, Kuveyt Türk, with 25.9 billion ($12 billion) Turkish lira in total assets, has participated in a number of landmark sukuk deals and this year plans to launch a bank in Germany, as well as a Malaysian ringgit or US dollar sukuk in Malaysia.

Thailand’s only Islamic lender saw a return to profit in 2013 after having to restructure problem loans. Rated BBB- by Fitch Ratings, the bank has a specialized financial institution status, given its state ownership and the strategic role it plays in providing shariah-compliant financial services in Thailand.

ADIB is the emirate’s largest Islamic lender and is majority-owned by members of the Abu Dhabi ruling family (48%) and the Abu Dhabi Investment Council (8%). Despite its exposure to the real estate sector, the bank has a “healthy profit-generating aptitude,” says RAM Ratings, sufficient capitalization levels and a stable retail deposit base.

BLME says it is the only Islamic bank offering a full range of services (treasury, corporate banking, wealth management) to the UK mid-market. Innovations it highlights include being the first UK bank to be appointed as co-lead on the 2013 IDB five-year sukuk, valued at $1 billion.

America is still relatively behind other regions in the world when it comes to the acceptance of Islamic finance. However, American Finance House Lariba, based in California, has provided a range of home, auto, business and equipment financing solutions based on shariah principles since 1987.

Tadhamon commenced operations in Yemen in the mid-1990s. The bank says it has $2.3 billion in assets and fixed capital of $93 million. However, the operating environment in Yemen in recent years has declined considerably. In response Tadhamon increased its exposure to the GCC via Tadhamon Capital.