Asiamoney Islamic bank awards

Asiamoney, April 2011

Best bank in the Asia region: CIMB Islamic

With activity in the Gulf having been so subdued since the Dubai near-default in 2009 – and, more recently, upheaval in the Middle East – the bank that leads the way in Asia has its strongest ever claim to be leading the way worldwide too. Step forward CIMB Islamic, whose market share as an underwriter of global Islamic sukuk, based on Dealogic’s numbers, hit a remarkable 24.2% in the 2010 calendar year.

Sukuk are clearly not the only way one should judge an Islamic bank, but they provide the most international comparable criterion for influence in the global Islamic markets. And apart from being pm the most deals, and dominating global volume, it was on the deals that mattered. It was, for example, the only regional lead manager (the others were Barclays Capital and HSBC Amanah) on the pivotal US$1.25 billion five-year sovereign sukuk from Malaysia in May, which was the largest ever dollar sovereign to issue Islamically, and came in the middle of the sovereign debt crisis in Europe, hitting a $6 billion order book with more than a quarter of demand coming from the Middle East.

CIMB Islamic is full service, from investment banking to consumer banking and asset management, discussed in more detail in the Malaysia award. But the asset management arm in particular cements the sense of an institution that is regional more than local. CIMB’s Islamic asset management offering runs alongside the CIMB-Principal Asset Management business, jointly owned by CIMB and the vast 130-year-old US house. And almost everything it announces these days has a regional bent: the absorption of Thailand’s BT Asset Management into the CIMB-Principal business in August, allowing CIMB to sell a full range of mutual funds into Thailand, including Islamic; the launch of the CIMB Islamic Global Commodities Equity Fund last year, which gave exposure to Shariah-compliant global equities benefiting from commodity demand. It is one of the world’s leading Islamic asset managers.

While many of its most notable efforts have been domestic, some of them have a global impact. CIMB Islamic CEO Badlisyah Abdul Ghani was instrumental in the development of the Bursa Suq Al-Sila’, the world’s first Shariah-compliant commodity trading platform, which is attempting to streamline commodity trading – and, through it, bank liquidity – across the Islamic world. As a lender, some of its most significant deals have been for multinationals, notably a 12-year $100 million loan, structured around the bai’ al-inah form, for Hewlett Packard in October. And then there are the bricks-and-mortar investments CIMB has built in the Islamic world, from its Bank Niaga stake in Indonesia to its ventures in Bahrain and Brunei. Malaysia wants to be a global hub for Islamic capital, and CIMB more than any other Malaysian bank is its flag-bearer.

Best bank in Malaysia: CIMB Islamic

CIMB Islamic continues to impress in domestic Islamic banking in Malaysia. There are banks that can compete on branches, or assets, or number of mutual funds, or research, or advisory, but it would rarely be the same bank twice. What stands apart with CIMB Islamic is that it is either the leader or a close second in every area from investment banking to consumer and asset management.

We don’t yet have the 2010 full-year numbers, but as of September 30 CIMB Islamic had RM34.8 billion in total assets, a 27.4% increase in just nine months, and entirely in keeping with the stellar growth of a business that had just RM0.5 billion as recently in 2005. Deposits (R0.4 billion in 2005, RM21.25 billion in September) tell a similar story, but actually one can look at any metric in the business – total gross financing, home financing, hire purchase – and see the same picture. And that’s just the consumer side.

In investment banking, CIMB clearly stands supreme in sukuk – with its role on the US$1.25 billion sukuk for the Malaysian sovereign, discussed above, the clear standout – but is also powerful on the equity side, with Shariah-compliant deals including Petronas Chemical Group and JCY International during 2010. It continues to win the important domestic sukuk deals too: a bookrunner role on a RM1.1 billion sukuk for Pembinaan BLT, a state-backed issuer, in January is illustrative.

Whether in esoteric capital markets or mum-and-dad personal finance, CIMB continues to innovative. The ijarah concept is gaining in popularity in Malaysia – previously it was mainly a Gulf staple – and in 2010 CIMB applied it to home financing for the first time in Malaysia, through its Ijarah Property Financing-I product. Its RC-I CM product is a Shariah-compliant revolving credit facility based on commodity murabaha. And then there’s the excellence in Islamic asset management, discussed in more detail in the regional award, as is the bank’s support for the Bursa Suq Al-Sila’ commodity trading platform. In credit cards, financing, wealth management, transaction banking and treasury there is a full-service range of products available and most of them have included some market firsts.

For all that, investment banking is still seen as CIMB Islamic’s strongest suit, and in that respect its immediate prospects are somewhat dependent on both the debt and equity markets, and their appetite for new issuance. But Badlisyah Abdul Ghani runs a business that has consistently stayed ahead through innovation and steady growth, and has seen off tougher markets than this one.

Best bank in the Middle East; Best bank in Saudi Arabia: Al Rajhi Bank

The world’s biggest Islamic bank, Al Rajhi continues to be considered the leader not only in Saudi Arabia but the Middle East region. It is, by Islamic banking standards, vast: at the end of 2010 it had total assets of SR184 billion, upon which it generated profits of SR5.1 billion for the first three quarters of its 2010-11 financial year. Its three million customers give it half of the national consumer finance market in Saudi Arabia.

Al Rajhi was, until very recently, just a Saudi Arabian story, but that changed in 2006 when it moved into Malaysia. It did so in a big way, and has 20 branches already, with plans to open many more. Unlike Kuwait Finance House – its obvious rival for the title of best bank in the Middle East – Al Rajhi opted to go into Malaysia with a full service offering, with all of its core banking products including retail. It is a grand ambition that can only be attempted with deep pockets.

With critical mass attained in Malaysia, Al Rajhi has now turned its attention to its own region, with approval gained in 2009 to open branches in Kuwait and Jordan. Kuwait has been the first to get underway, and again Al Rajhi says it has gone in to “serve all the needs of its retail and corporate clientele,” suggesting a full service offering in due course. In 2010 Al Rajhi announced plans to open five branches in Jordan within a year.

Still, there’s no question Al Rajhi is chiefly a Saudi story; the reason it qualifies for a regional award is in large part because Saudi matters more than almost all other Middle Eastern markets put together. Within that market, Al Rajhi excels on every metric: assets, profitability, headcount, customer base, branches, points of sale and lending.

More than sheer scale, it continues to launch new products and be innovative. Cash management and trade finance services, both undergoing electronic revamps, had excellent years in 2010. And the bank led a new Shariah-compliant bond, sukuk al-amanah Li al-Istithmar, in Malaysia. This is worth looking at in some detail: Al Rajhi was a lead manager on this RM5 billion debt programme by Cagamas, the Malaysian national mortgage company, starting with a RM1 billion print. It was structured in such a way as to be tradable in the Middle East, which generally takes a more conservative stance towards sukuk than do the Malaysian markets. Correspondingly, 33% of the deal went to the Middle East, much higher than usual. This raises big possibilities for further cross-border, cross-tradable deals.

Al Rajhi is, too, one of the strongest players in asset management in Saudi Arabia, although the stand-out in that area is NCB Capital and its Al-Ahli range.

Best bank in Qatar: Qatar Islamic Bank

QIB is the clear leader in Islamic banking in Qatar: impeccably connected to the state and top institutions, and with a critical mass that is going to be tough for anyone to compete with domestically.

Islamic banking is relatively powerful in Qatar: 31% of the total market, accounting for QR149 billion in total assets as of December 2010. Within that, QIB accounts for 35% of the Islamic pool, and 11% of the total banking assets of Qatar overall (and 30% of financing).

The bank has built its name on project and real estate financing, both in the public and private sector. It has funded many of the significant infrastructure and real estate projects in Qatar in recent years, including a record QR4 billion syndicated Islamic facility for the Qatari Diar development group; financing for Qatar Airways; a 25-year US$250 million facility to build a power and desalination plant, and US$150 million on a similar financing for the construction of the RAF A1 desalination project; financing for Qanat Quartier, within the landmark Pearl development; and The Gate construction project, a mixed use real estate project in Doha’s West Bay.

But in recent years it has grown considerably in consumer business too, having moved from one branch in 1983 and eight in 2005 to 28 today and 35 by 2012.  A recent example of innovation in this area was its Hemaya investment product, a Shariah compliant investment vehicle that has proven enormously successful in Qatar.

Like several other of the bigger Gulf institutions, QIB has sought to expand beyond its home boundaries in recent years. It is the key shareholder in Asian Finance Bank, one of the three Gulf institutions that went into Malaysia with full-service licences in the middle of the last decade (the others are KFH and Al Rajhi); it is also a key shareholder in Arab Finance House, in Lebanon; and has interests in Indonesia, Yemen, Syria and the UK, as well as plans in France, Turkey and Kazakhstan. It has also signed a memorandum of understanding with Woori in Korea and BPCE in France.

QIB has the best possible local backers, since the QIA – the country’s sovereign wealth fund – is now the bank’s largest shareholder. This will help strategically and in expansion. It also has muscle: authorized capital of QR2.1 billion at the end of 2010; QR51.8 billion of assets (32% year on year growth); customer deposits and absolute investment deposits of QR30.3 billion (up 49%); and a financing portfolio of QR29.3 billion, up 30%. Return on average equity was 17.9% in 2010, and capital adequacy stands at 17.4%.

This strength helped QIB launch its debut international sukuk in 2010, a US$750 million deal that attracted some US$6 billion of demand.

Best bank in United Arab Emirates: Dubai Islamic Bank

You wouldn’t call Dubai Islamic Bank a business that is shooting the lights out, but it’s still the obvious leader in UAE Islamic banking. Where other Islamic banks around the world boast double digit growth rates, often more than 20%, DIB’s deposits are steady and assets (at just under AED90 billion) growing around the 7% mark annually. But then again, this is the first true fully-fledged Islamic bank, formed back in 1975, so perhaps it’s unreasonable to expect lung-busting growth every year.

It tells you something that, after the AED806 million profit number, the first figure DIB highlights in its 2010 results announcement is provisions, bulked up by AED864 million over the year. That’s a reflection of a crushingly difficult business environment in Dubai, though most in business there feel is a feeling the worst is over. Still, in that environment DIB logged a net operating income (before those provisions) of just under AED 1.9 billion, showing that the well-established core businesses continue to do what they’re meant to.

The simple things worked for DIB in 2010: a focus on balance sheet strength and growth in the retail franchise. DIB upped its presence to 68 branches nationwide in 2010, with six new ones during the year, serving 1.2 million customers in a country whose rather fluid population is usually around the four million mark. Retail accounted for 49% of group revenues in 2010. Perhaps the most salient figure on the whole DIB balance sheet at the moment is the capital adequacy ratio of 17.8% under Basel II, a key differentiator in these uncertain times. Both Moody’s and Fitch upgraded their outlooks on the bank in 2010 (it publicly parted ways with S&P) and at the time of writing it was believed to be the only major bank in Dubai with a stable outlook from both.

Like many of the highlighted Middle East banks in this report, DIB has impeccable connections: its chairman is Mohammed Ibrahim Al Shaibani, whose day job is director-general of His Highness The Ruler’s Court of Dubai. And it’s also in a position to take advantage of lower asset valuations and grow where prudent, which it did in 2010 by increasing its stake in Tamweel, the Islamic home finance provider, to 58%, becoming the majority shareholder. And even in a conservative year, there was still scope for innovation: DIB was behind Emirates REIT, Dubai’s first real estate investment trust, and launched a new personal financing product, Al Islami Salam Finance, and a host of takaful products. Finally, its Dar Al Sharia consultancy and advisory subsidiary has gone from strength to strength, under the guidance of UAE uber-scholar Hussain Hamed Hassan.

Best bank in Kuwait: Kuwait Finance House

By far the biggest Islamic institution in Kuwait, KFH is also one of the Middle East’s few true international players. The regional award is always a choice between KFH and Al Rajhi.

KFH has grown steadily over the last decade, outpacing its native Kuwait. Its asset base, which stood at KD2.4 billion in 2001, was KD12.5 billion by the end of 2010, making for an annual average growth rate of 18.1%. Deposits are up fourfold, to KD7.6 billion, over the same period, and shareholders’ equity six times over to KD1.29 billion, an 18.3% annual growth rate. Net profits have been less dramatic in their growth rate, but have nevertheless doubled over the last decade and stood at KD106 million in 2010.

Bader Abdul Muhsen Al-Mukhaizeem, the chairman and MD, described 2010 as a year of “consolidation and cohesion” for KFH, as it was for many in the Gulf. It shifted investment – both in terms of its own portfolio and its offerings to customers – towards fixed income, low risk, high-liquidity opportunities; it continues to build its consumer business, launching a new family card, the Al-Ousra, in 2010; and it is a long-standing leader in real estate and aviation finance. It is considered to have one of the best electronic systems in the region, manifesting itself both at the treasury level and the individual, with various new smart mobile offerings launched during the year; it’s also evident in revamped credit procedures, anchored around a new documentary credit system called Trade Wind.

Just as Al Rajhi has opened in Kuwait in 2010, so its regional rival is doing the same in reverse. Saudi Kuwait Finance House is up and running and has received a licence to provide a SR500 million real estate investment fund. KFH has long-standing strength in Turkey, which it continues to build upon, launching a new gold investment fund through the Istanbul stock exchange during 2010. It also has branches in Germany and Dubai, as well as its KFH Malaysia and Bahrain businesses, which have eight branches apiece.

KFH is the second-largest Islamic bank worldwide by assets, and continues to impress in the region for its financial strength. Fitch gives it an A+ long-term rating, S&P A-, and Moody’s Aa3. Capital adequacy ratios (14.22% total, and 14.15% tier one, as of December 2010) are down slightly from 2009 but still well above the regulatory minimum of 12%.

BRUNEI: Bank Islam Brunei Darussalam

Competition is not especially fierce in Brunei, the less so since two of the main Islamic banks in the country, Islamic Bank of Brunei and Islamic Development Bank of Brunei, merged to form Bank Islam Brunei Darussalam. BIBD wins the title: in a small country, 14 branches and 600 staff is plenty enough to be dominant. Add its two subsidiaries – Takaful BIBD, which offers Islamic insurance, and BIBD Al-Tamwil, which offers hire purchase financing for vehicles and consumer products – and the group has more or less cornered the market.

For a modest domestic customer base, BIBD is pretty much full service. Its BIBD Securities arm handles brokerage to help its nationals invest in Shariah-compliant equities in Kuala Lumpur and Singapore; its investment banking division has been building an asset and fund management team steadily since the merger; and it offers corporate advisory, wealth management, investment and retail services.

There are more dynamic institutions in the Islamic world than BIBD: the most recent financial statements on its web site date from 2008 and its news section is a host of releases on blood donation campaigns and Toy Story 3 promotions. But still, BIBD is in an interesting place. Brunei has long since wished to diversify away from oil, and set up its Brunei International Financial Centre in 2000, where growth has been modest but the penetration of Islamic banking has been around 40% of total assets – much higher than most other nations. Since the announcement of a banking and insurance order in 2006, and a takaful order in 2008, the legislative environment is now in place, and there is a Shariah financial supervisory board now established at a state level. If Brunei does succeed in making itself a hub for Islamic capital, then nobody is better placed for the opportunities than BIBD.

The bank is also growing steadily. In January it reported a 14.8% rise in profits for the previous financial year to B$101.99 million (though it tells you something that the figures from that January AGM were from 2009). It has B$4.42 billion in total assets, and it has been appointed as a joint lead on some significant sukuk issues by issuers including Islamic Development Bank and General Electric Capital Corporation.

Pakistan: Meezan Bank

Meezan Bank, the first and largest Islamic bank in Pakistan, consolidated its hold on this award over the last 12 months. Firstly, it makes a compelling case based on scale: in January it announced its 222^nd branch across 63 cities in Pakistan. Irfan Siddiqui, president and CEO, has always talked of providing quality Shariah-compliant banking “to every citizen of Pakistan at their doorstep”, and that vision moves closer by the day; some achievement, since when he started saying it eight years ago, it was the smallest bank in the country. It also has the best (local) rating among Islamic banks in the country, at AA.

Secondly, its results are consistently strong. In February it announced its full-year results for 2010, with 61% growth in net profit for the year to Rs1.65 billion. Earnings per share were comfortably up, deposits grew 31% to Rs131 billion, and investments increased 139% to Rs 55 billion. Shareholders received 15% bonus shares in an effort to boost paid-up capital to Rs8 billion (the State Bank of Pakistan had earlier declared a Rs7 billion minimum, a requirement Meezan has now met a full year earlier than scheduled).

Other developments during the year included setting up a new car financing partnership with Indus Motor Company, and the launch of a new Mudarabah-based business account called Meezan Business Plus. It is also an increasingly successful asset manager.

There is huge opportunity in being the biggest Islamic bank in Pakistan. The country has one of the biggest domestic Muslim populations in the world, interest in Islam is clearly increasing – with more and more people wanting to invest their money in keeping with their faith – and individual wealth is climbing too. As more and more people shift from conventional to Islamic banking products, Meezan is ideally placed to benefit.

Indonesia: Bank Syariah Mandiri

The market for Islamic finance in Indonesia, while little developed, is becoming extremely competitive, with five new commercial Islamic banks licensed over the last 18 months in addition to the entrenched players. Of those who have been here longer, two compete in terms of assets, brand and overall standing: the Shariah versions of Bank Mandiri and Bank Muamalat.

A case can be made for both, but we have opted for Mandiri, which is starting to bring the strength of the conventional parent into its Islamic operations too. It is the national leader in assets – in the third quarter of 2010, it had Rp28.05 trillion in assets, up from Rp22.04 trillion at the end of 2009. Profits are still modest, at Rp291 billion in 2009 (the most recent full-year figure yet disclosed), but that’s still a fourfold increase since 2006 and the trajectory is encouraging. It had already beaten that figure in the first nine months of 2010, earning Rp320 billion.

Mandiri has had time on its side: it has had a designated Shariah team ever since the merger that created the overall Bank Mandiri back in 1999, and Bank Syariah Mandiri was formed the same year. It claims some 513 offices operating in 33 Indonesian provinces – one would imagine this involves some overlap with the broader network, but it’s not simply a statement of the overall Mandiri branch count, which is over 900. As a free-standing Islamic entity it has, for example, 220 ATMs in its own right, and claims a staff headcount of some 7,000 in September 2010, although again it seems likely there must be some overlap with the parent in that number.

BSM was upgraded by Fitch in early January to AA(idn); Fitch also upgraded its subordinated Islamic bond from 2007. These upgrades were chiefly predicated on the support from Bank Madiri itself, which put in Rp200 billion over 2008 and 2009 and is believed to be adding an additional Rp400 billion this year in order to bolster the Shariah bank’s capital adequacy ratio to 12%.

Like Islamic finance more broadly in Indonesia, BSM hasn’t done a whole lot so far but shows potential. Fitch, in its upgrade, noted robust financing growth, higher financing yields, a satisfactory deposit mix, and a falling (but still high) non-performing financing ratio (4.2%). It also has a healthy 117.5% provision cover. In the year ahead the bank is expected to expand its micro and SME portfolio in order to lower the concentration risk it faces through corporate financing.

Bahrain: Al Baraka Banking Group

At a time when one of Bahrain’s biggest and oldest Islamic banks, Bahrain Islamic, was announcing a BD39.7 million (US$105 million) loss for 2010, its rival Al Baraka was announcing a $193 million net profit, up 15% year on year. While other banks in the increasingly troubled kingdom have shrunk, Al Baraka’s total assets went up 21% to $16 billion. While others have stopped lending and investment, finance and investments at Al Baraka rose 21% to $11.4 billion.

Customers are getting the message too. Deposits and investment accounts were up 23% to $13.6 billion at the end of 2010, a clear sign of confidence.

Al Baraka chairman Shaikh Saleh Abdullah Kamel attributes the relative strength of Al Baraka to “a model that reflects the true values of Islamic banking and far-sighted business strategies,” which may or may not be a suggestion that not everyone has stuck to those true values and is now suffering accordingly. But it certainly hasn’t come at the cost of expansion: Al Baraka is arguably Bahrain’s most outwardly ambitious Islamic group, and now has 370 branches across 13 countries. In 2010 it opened a new commercial bank in Syria, and launched a new head office for its Turkish business. In October, it completed a merger with Emirates Global Islamic Bank Pakistan and so was able to turn its existing Pakistan branches into a local commercial bank, creating an entity with US$710 million of assets and 89 branches across the country. Next up: Libya – although it’s possible that might now be on hold for a while. Nevertheless, it expects the total number of branches worldwide to hit 500 within the next three years.

Back home, it remains a powerful and comprehensive bank with a full range of operations on the retail and commercial side. It has revamped HR, technical and operational infrastructure, and is working on joint financing of new projects with the Islamic Development Bank.

At the time of writing, with the Saudi army crossing the causeway to Manama, it was not clear just how events were going to pan out in Bahrain. “Not now,” said one person in Bahrain when asked for their opinion on the best Islamic bank. “There are gunshots in the back garden.” Bahrain has built itself on being a hub of stability and reason, and a loss of that status would have an immense impact on businesses there. But, set up in Bahrain in 1984, Al Baraka continues to look one of the strongest names in the country and the region.