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Minggu, 22 Agustus 2010

UAE plans to boost Shariah markets

July 12, 2010

The UAE, the second-largest Gulf economy, may follow Malaysia, Bahrain and Indonesia in selling Islamic securities with maturities of less than 12 months as legislators consider establishing a local debt market, according to Royal Capital.

Islamic bills would give Shariah-compliant banks more investment options, said Ahmed Talhaoui, Abu Dhabi-based head of investment at Royal Capital, which is 44%-owned by United Gulf Bank, an investment bank in Bahrain. The UAE’s eight Islamic banks held $49.8bn of deposits at the end of 2009, or about 19% of the total, central bank governor Sultan bin Nasser al-Suwaidi said at an Islamic banking conference in Singapore on June 14.

Banks that adhere to Shariah principles “are facing a maturity mismatch,” Talhaoui said in an interview this week. “They are keeping a lot of deposits but their options are limited. Some banks are playing a dangerous game, which is essentially to match short-term liabilities with investments in sukuk,” or Islamic bonds, which have longer maturities.

Malaysia, the world’s biggest market for Islamic bonds, Bahrain and Indonesia sell bills to help soak up cash in the financial system and set benchmarks for short-term bond sales. Lawmakers in the UAE are considering a proposal to establish a government securities market by the end of the year, al-Suwaidi said in March.

“Short-term liquidity management at Islamic banks and other financial institutions,” is a challenge, al-Suwaidi said this month in Singapore. “This is not a straightforward issue and has been under discussion between Islamic banks and the central bank. There is now a reasonable proposal to advance a solution for this issue.”

Saeed Abdullah al-Hamiz, executive director of the banking supervision department at the UAE central bank, didn’t immediately return e-mails or phone calls to his office seeking comment on the legislation. Al-Suwaidi said on March 15 that the legislation was in the final stages.

“The law will create a liquidity instrument that will carry, not the guarantee of the central bank, but assurances that the central bank will buy it for a certain price,” al-Suwaidi said at that time.

Transactions in Islamic finance are based on the exchange of assets rather than interest to comply with Shariah principles. Global sales of sukuk fell 23% to $6.5bn so far this year, according to data compiled by Bloomberg. Issuance totaled $20.2bn last year, up from $14.1bn in 2008.

Malaysia’s central bank sold 500mn ringgit ($155mn) of 91-day Islamic bills at a weekly auction this week. The yield on the securities rose four basis points to 2.68% from last week. Malaysia began weekly auctions of Islamic central bank bills in 2006.

Bahrian’s central bank sold 12mn dinars ($32mn) of three-month Islamic bills this week. The profit rate on the notes rose to 0.88% from 0.85% at the previous sale on May 31.

Pakistan plans to start issuing Islamic Treasury bills and will announce an auction schedule before June 30, Syed Wasimuddin, a central bank spokesman, said in an e-mail this week. The nation had Rs42.2bn ($494mn) of outstanding domestic sukuk as of April 30, less than 1% of its Rs4.6tn of regular debt, according to data from the central bank.

“It’s fundamental to the industry,” said Harris Irfan, head of Islamic products at Barclays Capital in Dubai. “Right now we rely on using the London interbank offered rate as a benchmark and that has its inherent criticisms. But what alternative is there? There is no Islamic Libor.”

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