Friday, August 21, 2009

Malaysian standardized commodity murabaha deposits, GCC sukuk issuance 2009H1, Nakheel sukuk update

Malaysian Islamic banking groups approved a Corporate Murabaha Master Agreement which will standardize the deposit murabaha agreement where an Islamic bank deposits funds that are used by the depositor to purchase a commodity and resell it to the bank with deferred repayment on a cost-plus basis. It standardizes a reverse murabaha agreement that is similar to a reverse tawarruq product. The agreement is seen as a beneficial innovation in Islamic money markets by the Association of Islamic Banking Institutions Malaysia (AIBIM) which secured the approval. Reuters reports the product will be similar to the Islamic interbank money markets already in operation. IIFM, an industry body in the GCC estimates that commodity murabaha accounts for $100 billion in annual activity.

Sukuk markets for new issuance in the first half of 2009 continue to be lackluster in the GCC with only $1.1 billion in sukuk issued and all but one of the new issues coming from the Bahraini government through its regular salam and ijara sukuk and a new $500 million longer-term ijara sukuk.

Nakheel and the government of Dubai could have saved up to $1 billion by buying back the sukuk instead of allowing it to mature at par with deferred lease payments in December. I describe this in greater detail in an article forthcoming in Business Islamica magazine.

Other News

  • National Bank of Kuwait continues to expand its ownership in Boubyan Bank to increase its Islamic banking industry exposure.
  • BIMB plans further innovation in its Islamic financial products.
  • Nomura plans to expand its operations into Islamic finance to attract GCC-based liquidity.
    A RAM Holdings analyst predicts greater growth in the industry in response to the financial crisis although his rationale as quoted in media reports seem to ignore the impact of the financial crisis in exposing speculative bubbles in real estate in the GCC that has had significant negative impacts on Islamic financial institutions that were overexposed to the sector.
  • The Filipino government is increasing the capital of the sole Islamic bank in the country, government owned Al-Amanah Islamic Investment Bank.

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