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Saudi Arabia: Islamic Banking Development & Opportunities

01 Mai

In terms of sheer size — whether it is a bridge financing or initial public offering — Saudi Arabia remains by far the largest and most liquid market for Islamic banking anywhere. The world’s largest single Islamic financing facility, the October 2004 $1.6 billion Islamic Murabaha bridge financing facility, part of a total financing of $2.35 billion, was done for Ettihad Etisalat, the second GSM license operator in the Kingdom. In its own erratic way, the Kingdom’s Islamic banking sector is developing at a brisk pace, driven primarily by a rapidly-growing market demand for Shariah-compliant financial products and supported by a softly-softly approach from the regulator, the Saudi Arabian Monetary Agency (SAMA).

This demand is sustained by the government’s stipulation that a certain percentage of shares must be offered for public subscription through an IPO. An example of this is the recently-established Al-Bilad Bank, the second Islamic bank and the 11th commercial bank in the Kingdom. The authorities want to enable ordinary Saudis to become stakeholders in financial and other corporates. At the same time, IPOs help mop up excess market liquidity created by buoyant oil prices. Demand for stock is also being driven by the introduction and uptake of new products including the controversial personal cash management facility, Tawarruq, which is now becoming popular in the Saudi and Gulf markets.

In June 2004, HSBC Middle East’s dedicated Islamic banking division, HSBC Amanah, launched its exclusive global brand of Islamic banking products under the HSBC Amanah label. « The introduction of the distinctive HSBC Amanah brand, » says Iqbal Khan, CEO of HSBC Amanah, « signifies that we can offer a full menu of services to our personal, corporate and institutional clients who prefer Shariah-compliant services. Coupled with our global reach, the HSBC Amanah proposition is unmatched by any other financial services organization. »

The Al-Bilad Bank IPO involving the flotation of 30 million shares at a value of SR50 per share is expected to raise half of the bank’s equity of SR3 billion. The Council of Ministers in mid-November formally approved the launch of the Riyadh-based banking house, an Islamic bank created through the merger of eight local money exchangers. Al-Bilad is due to begin operations by April 2005. Another bank, Bank Al-Jazira, the smallest of the 10 Saudi banks in terms of capital and assets, is in the process of converting all its operations to dedicated Islamic banking.

The demand profile of Islamic banking in Saudi Arabia has been supported by the introduction of a wide range of new products in areas including consumer finance and asset and cash management.

This success is reflected in the increased profitability of Al-Rajhi Banking & Investment Corporation which until Al-Bilad Bank’s approval was the sole exclusively Islamic bank in the Kingdom. Meanwhile, the nine conventional banks led by National Commercial Bank (NCB), Samba Financial Group, Riyad Bank, Banque Saudi Fransi and Saudi British Bank have also all seen increased revenues from their Islamic banking divisions.

Surveys done for the HSBC Middle East Business Confidence Index by YouGov, the UK-based pollster, suggest that almost half of Middle East companies including those in Saudi Arabia with sales of more than $100 million, expect to increase their use of Shariah-compliant financial services over the next three years. In addition, over 30 percent of all companies surveyed by YouGov indicated that they expected to use Islamic financial services more in the coming years.

According to David Hodgkinson, CEO and deputy chairman of HSBC Bank Middle East, 95 percent of all new borrowing (both business and consumer finance) in first quarter 2004 was done on an Islamic finance basis. He sees strong potential growth for the Islamic banking sector in the Kingdom and the rest of the GCC, particularly thanks to growing demand for financing from large corporations.

Perhaps the single most significant development for Islamic banking in the Kingdom and in the region was the announcement by NCB earlier this year that it is moving its entire SR20 billion retail banking business to Islamic banking by the end of 2005. Already half has been converted. NCB’s mutual fund business, of which the Al-Ahli Saudi Riyal Trading Fund with over SR10 billion under management, is by far the single largest Islamic investment fund in the world and is also 80 percent Shariah-compliant.

Already some 111 branches of NCB’s 252-branch network are dedicated to Islamic banking with 142 branches to follow in the next 13 months. In June 2004, NCB launched its new corporate logo and identity which the bank claims « matches its vision and drive to be the preferred provider of financial services to consumers and business — and an innovative leader in Islamic banking across the region. »

In terms of Islamic capital markets, at the sovereign level the Kingdom has lagged behind. The much anticipated issue of a benchmark Islamic bond or Sukuk has failed to materialize largely because of the high market liquidity thanks to buoyant oil prices which means that the Kingdom is projected to have a revenue surplus of over SR30 billion in fiscal year 2004.

However, on the corporate issuance sector, the Beirut-based BSEC-BEMO Securitization SALBSEC-BEMO Securitization SAL and Shamil Bank of Bahrain arranged and structured the pioneering SR102 million Caravan I Sukuk last March, in which a leading Saudi car rental company was able to securitize vehicle lease agreements.

According to Ibrahim A. Mardam-Bey, executive vice president, marketing & sales at BSEC, « the Caravan I was both a regional and worldwide first in its particular structure. Our client Hanco Rent-a-Car in Saudi Arabia has benefited greatly from the success of this transaction. BSEC has since been mandated by several regional clients for similar transactions. »

Mushtak Parker, Arab News

 
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Publié par le mai 1, 2005 dans Middle East

 

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