Latest from GIFC

Friday, 25 July 2008

Islamic finance seen as safe -UK Islamic bank

* Conservative Islamic finance attracts investors
* Gatehouse is 5th Islamic bank to open in UK
* International sukuk market needs kick-start

By Carolyn Cohn

LONDON, July 25 (Reuters) - Stable and conservative Islamic finance is attracting investors scared off by the global credit crisis, the chief executive of new UK Islamic bank Gatehouse said.
Islamic finance, which bans the payment of interest and restricts the use of some derivative instruments, has been growing rapidly in the past few years.
Islamic assets total around $1 trillion, the Asian Development Bank estimates, with annual growth of 10 to 15 percent a year.
Islamic bonds, or sukuk, are structured as profit-sharing or rental agreements which are underpinned by physical assets.
The lack of exposure to some of the riskier markets of which investors have fallen foul in the past year makes Islamic finance attractive, and not just to those investors requiring Islamic sharia-compliant transactions, Gatehouse CEO David Testa told Reuters in an interview.
"It's actually quite old-fashioned banking. It's asset-backed and asset-based, it's not the infinitely leveraged model. It's a good story in these stricken times."
Gatehouse, a subsidiary of the Securities House of Kuwait, started operating in April and says it is the fifth Islamic bank to open in the UK, which market participants say has taken the lead in Europe in welcoming Islamic banking.
The bank has paid-in capital of 50 million pounds so far, and authorised capital of 225 million pounds.
It has a staff of 30, with plans to reach close to 40 by the end of the year, and has a global reach, Testa said, concentrating on capital markets, private equity, wealth management and real estate deals.
Testa, who joined the bank after 10 years with WestLB as executive director in its capital markets group, said Gatehouse would look for a public listing by 2012.
Gatehouse is targeting Islamic borrowers in the Gulf looking to raise money internationally, international borrowers tapping into Gulf investors, and Gulf investors looking to make acquisitions outside the local region.
There is also interest in Islamic finance from the UK, the United States and Europe including Turkey, as well as the Gulf, Testa said.
"Growth is coming out of a booming emerging market in the Gulf and very strong Southeast Asian markets. The opportunities are tremendous."
Nearly two-thirds of the $100 billion worldwide sukuk market is based in Malaysia where the industry first took off.
But Testa said Malaysian sukuk deals were largely denominated in Malaysian ringgit and the global credit crisis, resulting in a weak dollar, had dented demand for hard currency sukuk deals.
"At the moment, the appetite for sukuk instruments is very much for local currency."
The sukuk market is encountering further difficulties after a major scholar last year said 85 percent of sukuk were not really Islamic, which caused many issuers to hold off debt sales.
Market participants are hoping for government sukuk issues to attract more international interest for sukuk from both borrowers and investors and to breathe life into the relatively illiquid secondary market.
Britain intends to issue its own sovereign sukuk debt in a rolling programme worth around 2 billion pounds, although it has said legal barriers still remain and a final decision will be made later in the year.
Japan, Thailand, Hong Kong and Singapore have also expressed interest in issuing sukuk.
"It is always helpful if we see government sukuk issuers come into the market. They are very eye-catching and bring some new investors in," Gatehouse's head of capital markets Anthony Saint said.
The extra documentation and oversight from Islamic scholars required to ensure sukuk issues follow Islamic law is a deterrent for some investors.
"There is a small premium to pay in terms of international structuring to make a deal sharia-compliant. If you are a very cost-sensitive borrower, it is not likely to be an ideal market for you," Saint said, adding however that:
"The premium will continue to reduce over time as the markets get more commoditised." (Additional reporting by Mohammad Abbas; editing by Stephen Nisbet)

Related Islamic finance site:

No comments:

Upcoming Events on Islamic Finance, Wealth Management, Business, Management, Motivational Alfalah Consulting, KL-Malaysia:


Register Online . Register Today

Islamic Financial Planning & Wealth Management by Ahmad Sanusi Husain