Asiamoney Asian Islamic Banking Awards
The last year has seen landmark capital market deals in the Islamic banking sector. And away from individual transactions, banking assets have continued to grow, alongside the number of customers taking advantage of the products on offer. Here we present our picks for the best Islamic banking franchises in Asia. By Chris Wright.
Best Islamic Bank in Asia
CIMB, our overall winner last year, remains the bank that has made the most successful attempt to take a strong Malaysian template for Islamic finance and to turn it into a regional, even global, business.
A glance at the bank’s deal flow provides the clearest evidence of this. Yes, CIMB was on 28.2% of all Malaysian ringgit sukuk between February 2014 and 2015, but the more important number is that it was also on 14.7% of all global sukuk, worth $6.5bn. While it handled 100 Malaysian sukuk issues, it was on 110 global ones.
The result is that when looking at the outstanding CIMB-led deals of the last 12 months, alongside the local landmarks for the likes of Malaysian Airports, Exim Bank or Khazanah, it's clear that CIMB was also central to some standout global deals.
When the government of Hong Kong launched the first sovereign sukuk from East Asia — the first, also, from a AAA sovereign, and at the tightest spread of any sovereign issue from Asia Pacific — CIMB was the only Asian name among the bookrunners.
When Indonesia launched a $1.5bn sukuk, a deal that not only attracted more than $10bn of demand from 390 investors worldwide but did so using a whole new structure for an Asian sovereign sukuk, the wakala, CIMB was once again the only Asian name.
Likewise for the UK’s landmark £200m sukuk, Turkey’s launch of $1bn of 10 year lease certificates, and the Islamic syndicated facilities around the Battersea property financing in the UK, a complex multi-jurisdiction deal that played to the strengths of those businesses with regional rather than local expertise.
CIMB Islamic has followed the parent bank’s lead in seeking to become an Asean, rather than just a Malaysian, universal bank. Progress towards that objective is mixed — naturally so, since demand for Islamic services obviously varies between Asean markets. But it offers across-the-board Islamic services in any local market that requires them, taking advantage of the foundation formed by CIMB Group’s 40,000 staff across 18 countries.
Most obviously, the target outside Malaysia has been Indonesia, a place of potentially very easy gains for a bank with Malaysia-honed Islamic expertise wanting to target a far bigger, and underdeveloped, market.
CIMB Niaga has had its challenges, due to slowing business and rising provisions. But its Islamic arm, CIMB Niaga Syariah, is already the sixth largest Islamic bank in the country and the eighth by financing and profitability.
It offers the usual banking products and services, investment banking, corporate finance advisory, research and asset management under Shariah-compliant methods in Indonesia, and has gone beyond Jakarta into Surabaya and Bandung. Among other things it has one of the most sophisticated digital offerings in Islamic finance in Indonesia.
CIMB Islamic offers treasury products and services, debt capital markets, commercial, corporate and consumer banking in Singapore, and has become instrumental to Singapore’s fledgling sukuk market, on one occasion boasting an almost 80% share of that market in 2013.
Again, it has brought digital nous to regional Islamic banking here, and was the first in Singapore to offer Zakat payments through internet banking. Elsewhere, CIMB is waiting to take advantage of the platforms being put in place to broaden the Islamic finance industry in Brunei, and supports Muslim clients in Thailand through its CIMB Thai business.
CIMB can claim to have been involved in advising governments on the formation of Islamic finance frameworks for their domestic capital markets in Indonesia, Thailand, Singapore, South Korea, Hong Kong and the UK.
But perhaps CIMB stands out more among its Malaysian peers in having been early to see opportunity in the Middle East, and to consider that part of a regional strategy.
Unlike many who have ventured to the Gulf through Dubai, CIMB opted for Bahrain when it set up back in 2006. Bahrain has long been a hub for Islamic finance, hosting the standard-setting body AAOIFI, for example. CIMB’s presence there has helped on distribution and advisory business ever since.
There is every reason to think that CIMB’s regional progress will now grow faster than its Malaysia business, partly because of the sense that Malaysia is fully banked, but particularly because CIMB has the right foundations to benefit from two key trends: the further use of Islamic finance in underdeveloped jurisdictions like Indonesia, and the increasingly cross-border nature of Islamic transactions.
Best Islamic Bank in Brunei
Brunei Islam Brunei Darussalam (BIBD)
There is, for the moment, no significant domestic competitor to BIBD as an Islamic bank in Brunei. It is the country’s flagship Islamic bank, formed a decade ago by a merger of the two previous leaders, and part owned by the Ministry of Finance and the Sultan Haji Hassanal Bolkiah Foundation.
Brunei Darussalam’s Islamic finance industry is small enough that BIBD is able to be the leading player and provide comprehensive coverage with just 15 branches and 700 staff. At the end of 2013, the last full-year data available, total group assets were over B$6bn ($4.4bn), net profit was B$114m.
It’s healthy — total capital adequacy stands at 24.3% — and it underwent a branding and service overhaul in 2013.
There are occasional promises to build an Islamic financial centre in Brunei, and whether or not that comes to anything, BIBD has been able to involve itself at the co-lead level in some of the world’s Islamic capital markets issues — and it still maintains it is the only bank in the country to have been on international deals.
It was on Al Hilal’s benchmark $500m sukuk, for example, and was a joint lead on a Singapore deal, an S$150m ($110m) Islamic Trust Certificate issue from Swiber Capital.
Best Islamic Bank in Indonesia
Bank Syariah Mandiri
If the planned three-way merger between the Islamic units of Bank Mandiri, Bank Rakyat Indonesia and Bank Negara Indonesia goes ahead, then this award is going to be a predictable process for the next decade at least.
It would combine the asset base and relative sophistication of Mandiri with the microlending capacity of Rakyat — likely to be one of the key engines of growth in Islamic finance in Indonesia. For the moment, however, the constituents must be considered separately.
Rakyat’s microlending strength is well worth a look: at the end of 2014, micro loans made up 31.3% of the bank’s loan book, and it is expected that the capacity to lend small amounts to consumers and start-up small businesses will be one of the most productive roles Islamic finance can play in Indonesia, the most populous of all Muslim countries.
But Mandiri leads the field on most metrics and retains the title of best Islamic bank in Indonesia.
Mandiri’s Shariah arm was launched as a distinct legal entity in 1999, and from a low base has never looked back. Its assets have grown by an average compound annual growth rate of 39.92% ever since up to the end of 2014, with financing growing by 43.41% per year over the same period.
In a market with a lot of players — 12 Islamic banks plus 22 further Islamic banking units — Mandiri has a surprisingly high market share, 24.58% in asset terms and 24.65% in financing.
But it says a great deal about the modest level of Islamic banking penetration in Indonesia that such a large Islamic bank still only ranks 18th in the country in terms of banking assets overall. It will increase that ranking, for sure, since clearly no one in the conventional banking world is consistently growing at 40% per year. But Islamic finance remains a story of potential rather than realised gains.
While the priority for Islamic banking in Indonesia has to be greater awareness and penetration of basic services among the community, Mandiri has also sought to be innovative.
One sees this most clearly in its use of IT. In 2014 BSM launched a mobile banking multiplatform to run on smart phones, and an e-money card that links an Islamic account with toll roads, busway tickets, parking and shopping.
It has also built specialist new products, such as Tabungan Mabrur Junior, a hajj saving account for children under the age of 17 who do not hold ID such as a driving licence. Apart from bringing banking services to a younger generation, the idea of the account is also to encourage young people to understand the costs of hajj and the requirement for long-term financial planning.
Like its parent, Bank Syariah Mandiri has bookrunning and syndication capability, and one would expect this to be an increasing source of growth in future as Indonesia’s domestic sukuk markets follow the sovereign’s lead and begin to develop.
Best Islamic Bank in Malaysia
Deciding on the best Malaysian business is tougher than deciding the best regional one, because many Malaysian banks have built extremely strong businesses in this area, with particular specialisms.
Maybank won our Malaysia award last year, in recognition of the considerable progress that bank had made across the board; Public Bank is still a leader on the asset management side; and AmIslamic is increasingly capable with a diversified business.
But from a starting point of investment banking and capital markets, it becomes difficult to look past CIMB for this award. Its dominance of Malaysia’s sukuk market — the most developed, sophisticated and liquid in the world — has always been, and remains, remarkable: 28.2% of all deals during our review period, worth MR15.6bn ($4.2bn), across 100 different issues.
But with CIMB it’s always been about more than the numbers. Under CIMB Islamic CEO Badlisyah Abdul Ghabi, the bank has always been at the forefront of innovation, not just in terms of its own product development but in assisting in the development of state institutions, exchanges, education and best practice.
One might think there’s not much more that can be done in Malaysia that’s new, but still the landmarks keep arriving.
The last 12 months have included, for example, Malaysia Airports Holdings’ inaugural sukuk, raising MR1bn in the world’s first ever rated perpetual sukuk, and Malaysia’s largest ever corporate perpetual sukuk.
Another would be Khazanah’s $500m aggressive exchangeable into Tenaga Nasional (TNB), the electric utility company. Khazanah’s sixth exchangeable, this was as eye-catching as the others, pricing at a negative yield and showing structural innovation.
A third would be the $1bn-equivalent multi-currency sukuk from Export-Import Bank of Malaysia (Exim Bank), the first dollar sukuk issue from an export-import bank and only the second sukuk from such a borrower globally. It was sold to 185 Islamic accounts worldwide.
Then there is the distinctive sukuk from the KLCC REIT, or the commercial paper and Islamic MTN programme from Suria KLCC, or the inaugural perpetual subordinated sukuk from DRB-Hicom, or the first sukuk for the Malaysian arm of Bank of Tokyo-Mitsubishi UFJ (the first sukuk from a Japanese commercial bank issued out of Malaysia) — or plenty else besides.
CIMB was on all of them, bringing innovation and advisory expertise alongside the usual bookrunner heft.
Still, where it was once true to say that CIMB was an investment bank with some other bits bolted on, that hasn’t been the case for some time now. Even though the mega-merger of CIMB Group, RHB Capital and MBSB failed in mid January — and part of its rationale had been to build a powerful Islamic bank — CIMB Islamic is still a considerable force, across consumer banking, asset management, takaful and private banking.
CIMB Islamic serves over 8m customers in Malaysia, a considerable level of penetration in a country of around 30m people, of whom perhaps 18m are Muslim.
We have argued before that the bank's structured products group perhaps pushes the innovation envelope a little further than is necessary for retail investors. It has launched over 1,400 products with a notional of around MR20bn, holding 27.7% of the structured product market for 70,000 retail and 70 corporate and institutional clients.
That is all very impressive, but one wonders how well many on the buyside understand a product bearing the name of Five-Year Funding Arbitrage Callable Flippable Islamic Power Range Accrual INI (“with added features”), for example. Nevertheless, it’s a market that CIMB has cornered with sustained popularity.
Closer to the mainstream, CIMB has a wide range of well-used offers from current and savings accounts to term deposits, credit cards, property financing, enterprise banking and remittance products.
Merger or no merger, it’s still the leader.
Best Islamic Bank in Pakistan
Meezan Bank was already the clear leader in Islamic finance in Pakistan even before it acquired the local operations of HSBC last year. In November, Meezan’s CEO, Irfan Siddiqui, said Meezan gained accounts with 75 multinational customers through the purchase, and was in the process of switching them to financial products that comply with Shariah law.
The HSBC purchase fits in with a pattern of rapid expansion that has been achieved without putting pressure on the bank’s indicators. On September 30 2014 the bank had 373 branches; by the end of 2014 it had 428. It’s aiming for 550 by the end of 2015.
Yet even with that capital expenditure, the bank’s financials are growing too. Net profit in 2014 was up 15% year on year, and earnings per share the same; bank deposits were up 31%, to Prp380bn ($3.7bn), with the financing portfolio growing 38% to Prp176bn. Alongside the expansion it logged a total of 27.5% cash dividends for the year.
Where it can’t grow organically, it is looking to partnerships. Earlier this year it announced a tie-up with Pak Kuwait Takaful Co, one of the biggest Islamic insurance institutions in Pakistan, to join forces on household financing.
For branchless banking, it has partnered with ufone, and for mobile financial services, with Inov8, which will build smart phone services and social media integration.