The Amanah alternative
16 March 2009
Crisis offers opportunity to Islamic finance sector
In a time when conventional financial institutions are experiencing financial troubles, Islamic banking has mostly been reporting profits and enjoying growth. Over the past five years, total assets of Islamic financial institutions have increased by 15-20 per cent annually, on average, and are projected to reach USD1 trillion by 2012*.
Recognising rich potential, conventional banks have quickly established Islamic banking operations as an alternative to traditional banking – and to help them grow and survive.
A new opportunity
This development did not surprise Musa Abdul Malek, Executive Director and Chief Executive Officer of HSBC Amanah Malaysia Berhad. "The current economic crisis has created a golden opportunity for the Islamic finance sector," he said. "The strong fundamentals and principles behind Islamic banking prohibit speculation and encourage ethical investment backed by strong fundamentals.
"Given the speculative nature at the root of this global credit crunch, there is minimum direct exposure to the credit fallout of bad assets in Malaysia's Islamic banking sector. This has enabled Islamic finance to remain resilient in the current economic turmoil.
"In the Middle East, this is mostly driven by market demand while in Asia-Pacific, the demand is being created by the legal, tax and regulatory changes and incentives offered by central banks.
"It is currently gaining favour with both Muslim and non-Muslim customers as it meets their needs. There is the possibility that more customers will now be seeking out Islamic finance as the preferred alternative banking solutions."
Regional Islamic finance hub
HSBC Malaysia is a key player in the banking industry of a predominantly Muslim country and has been providing Islamic finance services to clients since 1994 - a good four years before HSBC offered Islamic banking worldwide in 1998.
Islamic banking is based on Shariah principles which prohibit speculation and encourage ethical investment backed by strong fundamentals.
| HSBC Amanah role | Product | Value | Client |
|---|---|---|---|
| Joint lead arranger | Largest medium-term notes (MTN) for dual-tranche offering (Islamic sukuk and conventional tranche) | MYR2,555 million | CAGAMAS Berhad (Malaysian National Mortgage Corporation) |
| First Islamic sukuk (bond) commodity murabaha offering by client from its existing MTN programme | 14% | 14% | |
| Largest sukuk commodity murabaha issue in the MYR debt capital markets to date | 7% | 7% | |
| Largest sukuk issue in the MYR sukuk markets for 2008 to date | 8% | 8% | |
| Largest corporate bond issue in the MYR debt capital markets | 8% | 8% | |
| Joint principal adviser, lead arranger and lead manager | First dual debt instrument (bonds and loan) financing for a toll road project | MYR845 million (senior sukuk); MYR199 million (junior sukuk) | MRCB Southern Link Berhad |
Source: HSBC
Dovetailing with Group strategy
Is it such a big leap from the conservative Islamic principles of Amanah banking to HSBC's own Group strategy?
"The HSBC Group's tag line 'The world's local bank' is the main reason for it to undertake Islamic finance," Mr Musa said. "HSBC operates in many countries where a majority of the population are Muslims and Islamic finance is a platform that not only fulfils the local financial needs but also their religious obligations. As Islamic finance is inclusive, it will also cater to non-Muslims.
"The HSBC Group strategy focuses on sound practices backed by strong fundamentals with proper risk management, strict governance and supervisory frameworks that fit well with the principles of Islamic finance. Therefore, HSBC Amanah is in line with the HSBC Group strategy and will improvise on areas where Shariah compliance is required."
HSBC Amanah is confident that its market share will expand - as per the Group's plans and timetable. Mr Musa is confident about HSBC's contribution to Islamic banking. "I would say HSBC Amanah is well-positioned to enrich the growth of the Islamic finance industry within the region," he said.
* Introduction to Islamic Investing brochure, 2008. Produced by the HSBC Global Asset Management Sales Team
Source: Finance and Development, the IMF quarterly magazine, December 2005
Shariah-compliant, globally competitive
Mr Musa said the current uncertain times meant that "investors are more inclined towards products which can diversify their investment and at the same time have protection elements and higher returns, such as Islamic structured investment products. HSBC Amanah Malaysia offers innovative products which they feel could meet the market's demand and sentiments."
Islamic banking has been fast gaining new ground because of these sentiments. The main factor distinguishing Islamic banking is that it is a financial system whose principles are derived from the Shariah (Islamic law). A Shariah Supervisory Committee, composed of Islamic banking scholars, studies and reviews HSBC Amanah products before issuing a fatwa, or ruling, to ensure that these are fully compliant with Shariah law.
Social objectives, which counterbalance the profit incentive, are an indispensable component of Islamic banking. Profit is important to the operations of any financial institution but this is not the sole criterion in the performance of an Islamic bank, which needs to strike a balance between profitability and social goals to serve the interests of the community-at-large.
Euromoney has recognised the Group's commitment to raising the bar for Islamic products and tagged HSBC Amanah as the Best Sukuk House, Best Fund Manager and Best Takaful House for 2008.
HSBC Amanah Malaysia's products cut across a whole range of financial activities offered by conventional banks: from personal financial services, including credit cards and home financing, to wholesale investment funds, sukuk (Islamic bonds) and takaful (Islamic insurance).
"We hope to continue to lead the Malaysian Islamic banking market towards more groundbreaking deals for 2009," Mr Musa said.
HSBC Amanah named Best Sukuk House in Euromoney's Islamic Finance Awards 2009
Several of HSBC Amanah's 'standout' deals were highlighted, including HSBC Amanah's ringgit-denominated sukuk issue, which was the largest in 2008, and the largest commodity murabaha sukuk in the ringgit market. The bank was also bookrunner on the first and largest project financing sukuk.
Musa Abdul Malek
Musa Abdul Malek is the Chief Executive Officer of HSBC Amanah Malaysia Berhad, the first Islamic subsidiary of HSBC Bank Malaysia Berhad which commenced operations in August 2008. He will oversee all aspects of HSBC Amanah’s business in Malaysia and is also responsible for developing and making Malaysia the Islamic hub for the HSBC Group in the Asia Pacific region. A Business Administration graduate, Mr Musa joined HSBC 29 years ago.
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