Latest from GIFC

Wednesday, 29 July 2009

Islamic Finance Key to Asian Revival, Kuwait Finance House Says

July 29 (Bloomberg) -- Islamic finance will play a central role in reviving Asian economies as investors look to emerging markets to deliver higher returns than the U.S. and Europe, according to Kuwait Finance House.

Demand for investments backed by tangible assets like power plants and property grew after banks outside of Asia were hit hardest by the global financial crisis, Baljeet Grewal, managing director of the second-biggest Islamic bank’s research unit, said in a phone interview from Kuala Lumpur yesterday.

“Islamic finance is no longer on the periphery and so any crisis which impacts the global economy will of course impact it,” Grewal said. “However, we believe there will be an Islamic finance-led recovery driven by sukuk issuance and a move to Islamic deposits, which we already saw when some of the large American banks went down.”

Sales of Islamic bonds, also known as sukuk, increased from $144 million in January to $1.9 billion in March and $2.3 billion this month, according to data compiled by Bloomberg. Indonesia, which offered dollar sukuk for the first time in April, received bids for seven times the amount it sought and Malaysia said yesterday it would introduce a trading platform to make it easier for companies to buy and sell commodities like palm oil and rice that are used to back Islamic loans.

Muslim Populations

Islamic finance, which bans the payment of interest and stipulates agreements be based on the transfer of goods or services, will expand in Asia’s emerging markets because they have stronger growth prospects than the U.S. and European economies and larger Muslim populations, Grewal said.

Petroliam Nasional Bhd., Malaysia’s state oil company, is meeting today with investors in Kuala Lumpur about a possible sale of both conventional and Islamic dollar bonds and will hold further meetings in the Middle East, Europe and the U.S. next month, a person familiar with its plans said yesterday.

Kuwait Finance House Research forecasts Islamic assets under management globally will grow between 12 and 15 percent to as much as $1.1 trillion this year, compared with 23.5 percent growth in 2008. The deceleration is due mainly to a correction in property prices, Grewal said.

The economy of Indonesia, where around 200 million people, or 86 percent of the population, are Muslim, is forecast to grow at 5.5 percent in 2010, according to nine economists surveyed by Bloomberg, compared with 0.6 percent for France, home to some 5 million Muslims, the most among western European nations.

Indonesian Banking Assets

Islamic banking assets in Indonesia increased by 35 percent a year from 2004 to 2008, to 2.2 percent of the country’s total banking assets, Kuwait Finance House Research said. Bank Indonesia, the central bank, forecast 15 percent of the nation’s total banking assets will be structured in accordance with Muslim laws by 2015.

Sales of Islamic bonds plunged to $13.9 billion in 2008 from a record $31 billion a year earlier, according to Bloomberg data. In 2004, $5.8 billion Islamic bonds were sold compared with $2.2 billion in 2000.

Investors shouldn’t be discouraged by some recent high- profile defaults, Grewal said. In May, Investment Dar Co., the owner of half of luxury carmaker Aston Martin Lagonda Ltd., missed a payment on $100 million of debt, becoming the first company in the Persian Gulf to default on Islamic bonds.

“Sukuk have defaulted largely because of the fall in real estate prices which impacted ratings and prompted subsequent downgrades, but sukuk raised against infrastructure assets like power and water, they are still extremely strong,” Grewal said. “If you benchmark the risk of sukuk default and conventional bond default there’s no argument Islamic bonds have been the safer alternative.”

Alfalah Consulting - Kuala Lumpur:
Consultant/Speaker/Motivator : 
Islamic Investment Malaysia:

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