Finance

Bahrain: Learning lessons

While Bahrain's economy is well along the road to recovery, rebounding after last year's slowdown, there are growing concerns that this journey may be affected by the rising debt crisis in Europe, with a possible impact on the Kingdom's Islamic financial sector. Throughout the first half of May, a number of Bahrain's leading Sharia-compliant banks and finance houses have been releasing data on their first-quarter results. In many cases the reports make for comforting reading, showing solid performances across the board, rolling back losses or spiking profits as confidence returns. On May 11, the Al Baraka Banking Group announced it had boosted net profits by 13 per cent compared to the first quarter of last year, the black ink in the ledger amounting to US$48.3 million, with the bank also increasing assets by 4 per cent, deposits by the same level and total finance and investments by 3 per cent. Another Islamic lender to remain in positive territory was Khaleeji Commercial Bank (KHCB), though its US$1.33 million profit for the three months ending March 31 was down on its US$10.95 million during the same period in 2009. Gulf Finance House (GFH), which early this year came close to defaulting on a US$300 million loan before being able to reschedule payment also, appears to be recovering from the downturn of 2009, though it has further to go than many of its competitors in the Bahraini market. While still in the red, posting US$7.5 million worth of net loss in the first quarter of the year, this is a significant improvement from the same period in 2009 when GFH lost US$37.74 million. In a statement issued along with its financial report, the bank said the improved situation was a result of cost cutting and a better performance in some of its core activities, a theme other banks stressed in their quarterly statements. However, while the position of Bahrain's Islamic banks is improving, there are still some challenges ahead, with one storm front forming over the Aegean, where the Greek crisis has turned many investors off all forms of corporate debt. According to Nida Raza, the senior vice president for capital markets at Bahrain's Unicorn Investment Bank, uncertainty over how deeply the Greek financial crisis affects Europe and beyond will take the steam out of the sukuk segment until autumn at the earliest, with no large issuances for some time. (Source: OBG)

Bahrain: Banking on the future

Bahrain is looking to consolidate its position as one of the key players in the Islamic finance sector, working to build on its current position of strength and ensure it has the skills base to launch further expansion in the future. At the end of 2009, 27 of the 140 banks operating in Bahrain were Compliant-compliant lenders, with combined assets of US$25.5 billion, more than 10 per cent of the sector's total. In addition, at the beginning of 2009, there were 18 takaful (Islamic insurance) companies and one retakaful firm based in the Kingdom, out of a total of 177 insurance policy writers with offices in Bahrain. Though Bahrain's financial services sector managed to ride out the storm of the international economic crisis, with most Islamic banks and insurance firms posting solid profits and many increasing their asset bases, there is one key area where many are having trouble in boosting their credit - human resources. The conventional financial services sector is certainly already strong in terms of skilled personnel, but continuing expansion in the Islamic banking segment will likely require a larger inflow of highly trained labor. According to Garry Muriwai, the director of the Bahrain Institute of Banking and Finance (BIBF), there is a pressing need to deepen the pool of available trained and experienced staff able to work in the sector. In an effort to bridge the skills deficit, Bahrain's Waqf Fund for Research, Education and Training is working with local and international organizations to enhance the knowledge of those already employed in the sector and to help channel those about to embark on a professional career into the Islamic finance industry. (Source: OBG)

Islamic finance set to be US$2tn industry globally within five years

Islamic finance is all set to be a US$2 trillion industry in the next half a decade according to Rushdi Siddiqui, Global Head of Islamic Finance, Thomson Reuters. Speaking at a panel discussion at the MENASA Forum titled 'The Challenges Ahead for Islamic finance', Siddiqui said, "It took the Islamic finance industry 40 years to become a US$1 trillion industry. It will take another two to five years to become a US$2 trillion industry." However, there are many challenges that need to be overcome for the industry to realize its potential. Panelists said the lack of standardization in the industry, the lack of consensus among Shariah scholars, the poor "connectivity" between Islamic finance institutions across the world, and the global shortage of experienced Islamic finance professionals are some of the challenges facing the industry. Apart from Siddiqui, panelists who participated in the discussion included Mutlaq H. Al-Morished, Executive Vice President of Corporate Finance, SABIC; and Harris Irfan, Head of Islamic finance, Barclays Capital and Barclays Wealth. Afaq Khan, CEO, Standard Chartered Saadiq moderated the session. Talking about the lack of standardization and diversity of Shariah interpretation in the industry, Harris Irfan said it was becoming less of a challenge with the increasing convergence of standards. "I am 100 per cent convinced that we are seeing the convergence of opinion in Islamic finance across countries, scholars and schools of thought," he added.

BFX plans membership push

The Bahrain Financial Exchange (BFX) in early May unveiled plans for its membership activity to concentrate liquidity across the Middle East and North Africa (MENA) region via its multi-asset product portfolio. The Greenfield International Exchange, owned by Financial Technologies Group of India, a global player in creating next-generation financial exchanges and ecosystem ventures, will be going live this year in October. "Asia, Middle East and Africa are among the fastest growing regions in the world and expected to continue to grow annually at six to 10 per cent over the next 25 years," group chairman and chief executive officer Jignesh Shah said. "The group is perhaps the first company to successfully set up three green field-regulated exchanges from ground up which would go live in the same year. The scale of the vision is based on the 'spice and silk routes' that used to connect trading and financial communities from Africa, Middle East, India and Asia centuries ago with the rest of the world. Singapore, Bahrain and Mauritius are ranked among the top international financial centers and are equivalent of 'New York and London and Tokyo' of Asia, Middle East and Africa - the fastest growing economies in the world. Financial Technologies Group is singularly positioned to proxy the growth of these economies," he added. This membership work will involve business development teams from the BFX meeting key personnel from the leading financial institutions in the Mena region to discuss opportunities on how they can take part in the BFX markets. It will also involve activity outside the region, in places such as the US, London and India.

UAE markets put on alert for potential June IPO

The UAE's IPO market is on the verge of bursting back into life, according to the head of local investment bank Shuaa Capital. "We know of a pipeline of 300 companies planning to go public as soon as possible, but market conditions have thus far not encouraged that," Shuaa CEO Sameer Al Ansari told attendees at the MENASA Forum in Dubai in May. Al Ansari said that Shuaa was working on three firms in the UAE that were "ready to go".

Fitch withdraws Piraeus Bank Egypt's ratings

Fitch confirmed in early May and simultaneously withdrew the support rating of 3 assigned to Piraeus Bank Egypt (PBE). The agency also withdrew the national long-term AA-(egy) and short-term F1+(egy) ratings of the lender, which are "negative" watch. Fitch will no longer provide rating or analytical coverage of Piraeus Bank Egypt, the rater said without elaborating. The "negative" watch on PBE's ratings is in tune with that on its Greek parent, Piraeus Bank (ATH:TPEIR), and therefore cannot be resolved while the parent remains on "negative" watch, it added.

Oman: Institutional focus

Oman's capital markets look set to benefit in the future from increased participation among institutional investors. According to a recently published report by NCB Capital, a Saudi investment company, the Gulf Cooperation Council (GCC) will increasingly attract international institutional investors looking to benefit from the region's stable economy, high-net-worth individuals and big-ticket infrastructure projects. One of the knock-on effects of this type of investment should be to help reduce some of the volatility that has previously affected the region's markets - until now dominated largely by individual retail investors. The Muscat Securities Market, the Omani exchange, has generally been more open to foreign institutional investors than other bourses in the region. In May (the most recent month for which figures are available), foreign institutional investors accounted for 12.3 per cent of sell and 8.7 per cent of buy transactions on the MSM. By contrast the Saudi Tadawul - the region's largest bourse, accounting for 49 per cent of GCC market capitalization - is mostly composed of individual investors (91pct), with non-financial institutions accounting for only 4 per cent of investments. As a smaller bourse, the MSM is often prone to a herd mentality among investors - both in bear and bull markets. This can result in some impressive gains during bull runs, but also some equally impressive crashes when sentiment turns. For example, between June and October 2008, during a period of intense turbulence in global financial markets, the MSM sank below 6000 points from a high of over 11,000. While this slump coincided with the onset of the global financial crisis and a fall in the price of oil, the prime mover was actually hot money from foreign investors who had banked on a revaluation of the Omani riyal against the US dollar (at one point foreign investment in the bourse surged to 28 per cent). When that revaluation failed to materialize, those investors cashed in their chips, creating a sudden overhang in sell positions that prompted domestic investors to follow suit, triggering the drop. (Source: OBG)

Abraaj Capital only private equity firm outside US, EU in top 50

Abraaj Capital, which has raised US$6.46 billion during the last five years, is the only private equity group in the global Top 50 from outside North America and Europe, and the biggest from the emerging markets. Abraaj Capital operates seven offices in the MENASA region, stretching from Istanbul to Karachi and Cairo to Riyadh. Its headquarters are in Dubai. The Top 50, part of a PEI ranking of the world's 300-biggest private equity firms, includes names such as The Carlyle Group, Kohlberg Kravis Roberts and TPG. See http://www.pei300.com for the list. "Getting into the Top 50 shows that there is enormous interest and potential in the emerging markets, and the MENASA region in particular, where the opportunities for growth are remarkable," said Mustafa Abdel-Wadood, the CEO of Abraaj Capital's private equity business. "The combination of a young and expanding population, economic reform and the availability of capital make this truly one of the most exciting growth regions in the world." The PEI 300, now in its 4th year, is the only like-for-like ranking of private equity firms by size. It ranks groups by the amount of direct-investment private equity capital raised or formed during the last five years. In the 2009 ranking, Abraaj Capital was number 54 in the world, still the biggest from the emerging markets.

Infrastructure and economic diversification to drive Saudi private equity market

With the steady population growth propelling continuous infrastructure development, Saudi Arabia is considered the next big market for private equity and venture capital investors, according to investment specialists in the MENA region. Infrastructure investments amounting to billions of dollars will be required to fund this growth. It is estimated that approximately US$20 trillion will be spent on infrastructure in the emerging markets within 10 years, and global PE houses will invest a considerable percentage of this amount. The attractiveness of the Saudi market to private equity investors has grown sharply in recent years. This has been a function of new private-sector opportunities created by the broad economic diversification and liberalization beyond oil and gas, said Amr El-Barbary, Managing Director at Citadel Capital, the leading private equity firm in the Middle East and Africa with investments of US$8.3 billion spanning 14 countries and 15 industries.