Asiamoney Islamic bank awards

Asiamoney Islamic Bank Awards, April 2012

Best bank in the Asia region: CIMB Islamic

CIMB Islamic’s transition from the best Islamic bank in Malaysia to the best Islamic bank in the region becomes more entrenched by the year. Aside from its full service offering in Malaysia, CIMB now offers corporate and investment banking, consumer banking, asset management and takaful in Indonesia; and both corporate and investment banking and asset management in Bahrain, Brunei and Singapore, alongside a growing presence in Thailand and the UK. In consumer banking the group has 1,150 branches across Southeast Asia, and is represented on the ground in 14 countries.

At a group level, CIMB Islamic continues to go from strength to strength. In the first half of financial 2011, profit before tax climbed 66% year on year to RMB264 million; today CIMB Islamic accounts for 13.8% of total CIMB group loans. Deposits grew 13.7% year on year to RM23.1 billion. Granted, Malaysia is the biggest part of this; but the contribution from other parts of the region, as in the conventional bank, grows by the year.

CIMB is, first and foremost, built on an investment bank, and that remains the mainstay of its capabilities in the Islamic sphere too. More and more of this work is cross-border. In October CIMB was joint lead manager on the first ever RMB sukuk, the RMB500 million issue for Khazanah Nasional, the investment arm of the Malaysian state. Apart from being the first Islamic dim sum bond, this was the first of its kind from a Southeast Asian sovereign or quasi-sovereign.

Asset management is the other area where CIMB’s regional, even international reach is clear to see. In January, CIMB-Principal Islamic Asset Management, a joint venture between CIMB and Principal Global Investors, received approval from the Central Bank of Ireland to establish an Islamic fund platform domiciled in Dublin, the first of its kind from Malaysia. This will act as investment manager for Islamic UCITS funds in Dublin, starting with three new Islamic funds: global emerging markets, Asia Pacific ex-Japan, and Asean equity. The fact that none of these is a pure Malaysian funds further speaks to the group’s regional aspirations as an emerging market leader; these funds will eventually be registered and distributed in the UK, Switzerland, Germany, Saudi Arabia, Bahrain, the UAE and Singapore. CIMB said at the launch that it hoped to help realise the MIFC’s aspiration for Malaysia to become an international hub for Islamic finance.

CIMB Islamic CEO Badlisyah Abdul Ghani – a key driver in Bursa Suq Al-Sila’, the world’s first Shariah-compliant commodity trading platform, which seeks to make Malaysia a hub for Islamic commodity trading – continues to work hard to build CIMB into not just a domestic but a regional presence in Islamic banking. It is a natural standard bearer for bringing home-grown Islamic expertise to the broader region.

Best bank in Malaysia: CIMB Islamic

CIMB is not the biggest Islamic bank in Malaysia – Maybank is the biggest in asset terms, and an increasingly good business – but CIMB continues to take this award for the breadth of businesses it operates and its role at the forefront of innovation.

CIMB Islamic is by no means small: it now has 323 branches in Malaysia, boasts RM37.94 billion in assets (that’s in CIMB Islamic Berhad, the Malaysian bit, according to third quarter interim results), and has achieved strong penetration into the consumer market with its CIMB Clicks online banking system.

But it is in investment management, investment banking, and increasingly takaful that one frequently finds CIMB stepping up with innovative products. It is always a leader in sukuk issuance; it was involved in 15 in 2011. It is gathering notable strength in Islamic project finance, arranging a RM5 billion deal to finance the site acquisition, development, design, construction and delivery of a coal-fired plant in Perak, Malaysia, all of it Shariah compliant.

In asset management it offers the broadest range of products available in Malaysia – only Public Mutual can really compare – with product now covering equity, sukuk, money market, balanced, quantitative, private equity, real estate, structured and strategic investments, through unit trusts and managed accounts as well as institutional mandates. Individuals, governments, institutions and corporations nationwide and worldwide use the CIMB Principal venture’s Islamic products.

For example, last year CIMB Islamic launched Flexi Select NID-I, a 10-year structured investment product based on the Shariah concept of restricted murharabah. This product allows investors to review their outlook every two years within the same product. It uses a variable payout structure linked to Chinese, US and European reference equity indices, and is capital protected.

Increasingly, the insurance side – takaful – is gathering pace too. In Malaysia this is badged through the EasyLife Takaful Series, providing comprehensive protection plans from basic coverage like personal accident and medical, through to investment-linked products. Additionally, the private bank within CIMB has an Islamic offering, affiliated with CIMB Islamic, offering a wide range of Shariah compliant investment products to Malaysia’s growing number of high net worth individuals.

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

The biggest and still the best? Al Rajhi still has considerable scale on its side, with total assets of SR184 billion, paid up capital of US$4 billion and more than 7,500 employees, alongside more than 50 years of history.

But Al Rajhi keeps winning this award not just because it is the biggest, but because it most accurately reflects the banking style that the times require. There are bolder Islamic banks around, expanding more rapidly, pushing the envelope more, but Al Rajhi’s inherent conservatism has been exactly what the Gulf has needed in recent years, allowing it to navigate treacherous markets and regional politics successfully. Superficially, you might not think Al Rajhi is doing a whole lot; yet in January, when CEO Abdullah Suleiman Al Rajhi announced a 9% increase in net profit to SR7.37 billion, off the back of a 41% year on year climb in banking services revenue, it was the single best net profit figure in the Saudi Arabian banking industry, whether conventional or Islamic.

Everything is going steadily in the right direction: total assets SR221 billion, up 20% on 2010; customer accounts, SR173 billion, up 21%; coverage ratio of 149%, up 9.5%. It pays reliable dividends. It keeps its ratings (A1/A+). It doesn’t launch new businesses and then see them blow up.

In Saudi it is the very obvious leader among the pure Islamic institutions. In the Kingdom alone it has over 550 branches (including over 100 dedicated ladies branches), more than 3000 ATMs, 23,000 point of sale terminals, and the largest customer base of any bank – conventional or Shariah – in the country.

Internationally, while Malaysia is not strictly relevant to a Middle East regional award, it does demonstrate how Al Rajhi does things when it sees an opportunity: since opening there in 2006, becoming the first foreign bank to be awarded a full banking licence, it has made itself very much part of the fabric of the local Islamic banking scene.

Within the region, it has focused on Kuwait – where a fully fledged branch offers retail and corporate solutions – and Jordan, where its long-awaited branches opened in March 2011. Nevertheless, being a predominantly Saudi story is no bad thing when Saudi Arabia is such a large part of the entire Middle Eastern wallet.

While doing the straightforward things well has been an Al Rajhi mainstay, there is room for innovation here too, particularly within the Al Rajhi Capital business. This covers asset management, brokerage and corporate finance. On the asset management side, that includes local mutual fund product and partnerships with external fund management partners, as well as discretionary portfolios; while the corporate finance business is active in IPOs, rights issues, M&A, placements and other advisory. There is also an effective research department.

An example of a new product is the Multi Asset Conservative Fund, launched in 2011 as a response to volatility both domestically and internationally; it combines commodity murabaha and equity indices in order to achieve growth with capital preservation. Which sounds, in fact, a lot like Al Rajhi itself.

Best bank in Qatar: Qatar Islamic Bank

It’s hard to imagine a time when Qatar will not win this award, such is the scale of the bank and its links with the people who matter in Qatar, from the royal family to the top institutions.

Better still, Islamic banking itself is growing in Qatar too.  QIB says that Islamic banks account for 31% of the assets of Qatari banks, and that QIB in turn has 35% of the assets of the Islamic industry, or 11% of the assets of the entire national banking industry (and 30% of the financing).  The bank’s assets reached QR58.3 billion in 2011, up 12.4% year on year.

Chairman Sheikh Jassim bin Hamad bin Jassim bin Jaber Al-Thani, presenting the QIB 2011 annual report to shareholders in February, described it as the “trusted source” for Islamic banking services, and that’s the point: for any Qatari enterprise, QIB is the go-to bank they will trust to do their work in Islamic finance.

In particular, it is well exposed to the host of infrastructure development underway in Qatar today. A recent example was the joint financing of the Barzan gas project, within which QIB is a stakeholder. At the other end of the business, QIB is boosting its exposure to SMEs.

That said, QIB stumbled somewhat in 2011, with loan growth of only 0.3% (and given that real estate lending was up 26.8%, it gives a sense of how other areas actually declined). Still, analysts are positive; Global Investment House forecast 23% loan growth for QIB in 2012, driven by beneficial Islamic regulation, a re-organised corporate business, and real estate exposure.

And loans are perhaps not the main thrust of QIB right now, so much as investments, which grew 176% in 2011 to QR16.9 billion. Besides, with or without loan growth, profitability grew by a healthy 8.2% in 2011 (to QR1.37 billion) and the bank was healthy enough to pay a 45% dividend distribution, keeping shareholders happy too.

Clearly too big to stay at home all the time, QIB has operations in the UK, Lebanon and Malaysia (where it is the key shareholder in Asian Finance Bank), and is believed to be looking at others. It has interests in Indonesia, Yemen and Syria and has historically been linked with France, Turkey, Korea and Kazakhstan. Growing globally without ruining what it’s done right in Qatar will be a challenge for the coming decade.

Best bank in United Arab Emirates: Dubai Islamic Bank

This award is no longer the automatic choice it once was, but the world’s first fully-fledged Islamic bank is still the one with the most impressive numbers in the UAE. Net profit for 2011, at AED1.01 billion, was up almost 25% on 2010; assets rose modestly to AED90.59 billion; customer deposits grew 2.1% to AED64.77 billion; and core business – income from financing, investing assets and investment sukuks – was up 10.2% to AED3.96 billion.

Business has not exactly been easy in the UAE in recent years, but all the numbers are clearly heading in the right direction and DIB’s service offering is increasing too. It opened seven new branches in the country in 2011 (it now has 74), and caught the trend of specialist private banking offerings to Islamic investors by opening its first stand-alone Al Islami Private Banking branch. It expanded its various alternative banking channels too.

Importantly, given the national travails since the financial crisis, the bank looks solid. Its Basel II capital adequacy ratio stood at 18.2% on December 31, and its tier one capital ratio, 13.7%. It is liquid and stable, and it is trying to diversify its sources of growth.

Beyond the straightforward banking growth, the more innovative business are developing too. DIB’s Shariah consultancy subsidiary, Dar Al Sharia Legal & Finanncial, offers consultancy for Islamic and investment transactions regionally and internationally, and grew out of DIB’s Shariah Coordination Department in 2008. That business is gaining recognition, while the early signs of a revival in dollar sukuk from the Gulf are also good news for DIB, which at the time of writing ranked fifth worldwide year to date among arrangers of international sukuk, and second among the non-global names.

Best bank in Kuwait: Kuwait Finance House

By far the biggest name in Kuwait and one of the biggest players in Islamic finance worldwide, Kuwait Finance House is returning to growth after a difficult financial crisis, much like Kuwait itself.

First half results, the latest released, illustrate the progress: 8% growth in assets, 14% in deposits, 2% in total shareholders’ equity. It opened three new local branches in 2011, bringing the total in Kuwait to 58. 2011 total revenues, at KD872.1 million, were up 18.4% year on year, although net profit fell.

Still, KFH is a rather different model than, say, Al Rajhi; rather than being reliant on steady deposit growth, KFH has something of an entrepreneurial bent, moving in and out of businesses as an investor as much as an advisor. For example, in the third quarter it sold the communications part of its technology arm, Integrated Turnkey Systems, to Chinese communications group Hawawi, raising US$40 million in profits – not a fortune, but illustrative of a successful private equity approach to business. Similarly in January it made a $96 million profit on the sale of a real estate project in Saudi Arabia. The standout example in this field has long been its participation in aircraft purchase and leasing: stable growth rate, good returns, excellent business.

It also stands out for its international operations, and here, too, there’s evidence of a distinctively proactive approach. In late 2011 it was seeking to merge three Bahraini Islamic banks into the single biggest one in the country. This should come together in 2012, and if it does, will create a platform for further growth. Elsewhere, some of its businesses are entrenched and successful – Malaysia, Turkey – and others, such as Saudi Arabia, younger.

In January, KFH’s board approved a new five year strategy and ‘transformation program’ – their words. In truth, it’s not clear how this strategy (improving banking performance in Kuwait, streamlining the investment portfolio, and increasing coordination among banking subsidiaries) differs much from what it was already trying to do, but the point is more about looking forward after several difficult years for the region.

Lately, KFH has been reminding clients about its long term growth, when the crisis is put in context; 467% growth in assets to the end of 2011, 400% growth in client deposits, 492% growth in credit portfolio. Viewed in this light, no matter how tough the Kuwaiti economy today, it’s hard to argue with the model.

BRUNEI: Bank Islam Brunei Darussalam

Back in 2005, the Ministry of Finance announced a merger of Islamic Bank of Brunei with Islamic Development Bank of Brunei; the resulting offspring, Bank Islam Brunei Darussalam, was incorporated later that year and began life in July 2006.

Doing so rather put an end to any domestic competition for this award, but it did create a credible institution capable of helping with what Islamic financial services Brunei requires. That is, in part, personal consumer banking for a Muslim population, which it does through its “more than 14 branches” (that is, exactly 15 branches) across the small state, and through its takaful and hire purchase subsidiaries.  Partly, it is brokerage, through its BIBD Securities unit, which is geared to providing the state’s citizens and institutions with access to Islamic securities in Kuala Lumpur and Singapore. And partly, it is investment banking.

In theory, the last bit could become the most interesting. Brunei’s oil and gas wealth is well known, which lends itself to project finance development. It is also keen to diversify into a useful offshore financial centre for when the hydrocarbon wealth is depleted, and that also ought to suit an investment bank with a local near monopoly. The bank says it offers corporate advisory, innovative financing solutions, and asset management including global equities and sector funds, but to date the challenge has been dealflow: the most exciting thing to happen here in the last 12 months was the closing of a US$75 million five-year murabaha financing facility for Turkiye Finans Katilim Bankasi in which BIBD was one of 20 banks in the syndicate. Turkey has proven a successful link for the bank: this was the fifth syndication in the country for BIBD, and the second for this client.

Pakistan: Meezan Bank

Meezan is not just the first and largest Islamic bank in Pakistan, but the fastest growing bank of any type in the country. At the end of 2011, it had Rs170 billion in deposits, 275 branches in 83 cities, and assets of over Rs200 billion. Its profit in 2011, at Rs3.4 billion, was more than double that of 2010.

Analysts like Meezan because it combines rapid growth (30% growth in deposits in 2011; 53 new branches) with what looks like a sustainable approach, meeting the State Bank of Pakistan’s minimum capital requirement a year early. It paid investors a 22.5% dividend in 2011 and is also rewarding them with rapidly improving earnings per share. Locally, it is being upgraded; JCR-VIS, the credit rating agency for the region, now ranks Meezan with its highest short term rating.

President and CEO Irfan Siddiqui speaks of making Islamic banking the first choice for all Pakistanis; of providing high-quality Shariah service to every citizen on their doorstep. That ever-growing branch network is bringing the vision consistently closer.

Beyond retail, other initiatives are gathering pace. In February Meezan said it would manage term finance certificates worth Rs15 billion for the federal government, and is in talks with the finance ministry about sukuk issuance for the ever-indebted power industry. In January it was lead arranger and advisor on a Rs4.8 billion syndicated Islamic finance facility for DH Fertilizers – the first company in Pakistan to convert all of its long term bank borrowings to Islamic finance in 2007.

As ever, one is struck by the opportunity in Pakistan: one of the world’s largest Muslim populations with climbing individual wealth despite the country’s immense challenges.

Indonesia: Bank Syariah Mandiri

Slowly, Indonesia is taking up Islamic finance. In 2011, Islamic holdings enjoyed their fastest growth since 2003, with a 49% rise in holdings to Rp145.5 trillion. That’s not huge – it’s equivalent to about $16 billion, barely one tenth of the figure in Malaysia – but it is a step in the right direction. Bank Indonesia says it wants the industry to account for 5% of total banking assets by 2013 and 10% by 2015-2020 (it’s less than 4% today), so a clear marker has been set.

The two big local names in Islamic finance are Bank Syariah Mandiri and Bank Muamalat Indonesia, while smaller names with foreign ownership – such as Bank Permata, in which Standard Chartered Saadiq holds a 44.5% stake, and Bank Niaga, which is owned by CIMB – are bringing their international expertise to bear locallyin Shariah businesses. As of the second half of 2011, BSM was reported to have a 38% share of the Islamic market, and Muamalat 24%.

BSM clearly benefits from the support of its parent, Mandiri, both financially and in terms of its distribution channels. In December, the parent put in Rp300 billion of new funds to finance expansion. This has proven crucial to ratings, too: in December Fitch upgraded Bank Syariah Mandiri to AA+(idn) with a stable outlook, upgrading its bonds at the same time. Fitch said: “The upgrade of BSM… is driven by stronger integration in risk management between BSM and its parent… and continued commitment of capital injection from Bank Mandiri.” It added its “expectations that the propensity of support from Bank Mandiri is unlikely to change given its full ownership over BSM, the common brand name, and ongoing technical and financial assistance to grow BSM’s sharia banking business.” This support will also help when BSM launches an expected Rp500 billion sukuk soon.

Still, rich parents aren’t everything; can the bank stand on its own feet? Its third quarter net profit figure of Rp409 billion was healthy, financing is growing, NPLs are falling and provisions are OK (104%). Tier one and capital adequacy ratios, at 9.1% and 11.1%, are fine and going up, though the CAR will need to reach 12% during the course of the year.

BSM remains a story of potential as much as achievement, but the signs are good.

Bahrain: Al Baraka Islamic Bank

Our decision to give this award to Al Baraka rather than the larger Bahrain Islamic Bank caused some waves last year, but Al Baraka retains the award and continues to go from strength to strength. In 2011, a very difficult year for Bahrain, it grew operating income by 51%, assets by 18.7% (they now stand at BD602.4 million), and the investment and financing portfolio by 13.5%. Some of the net figures were down, reflecting full consolidation of operations in Pakistan and Bahrain (the bank merged two banks in Pakistan to create an independent Islamic commercial bank), but in the circumstances the results were promising. “The year 2011 was a tough year locally, regionally and globally,” said chairman Khalid Rashid Al Zayani. (All these figures refer to Al Baraka Islamic, which contains the Bahrain and Pakistan operations, not the broader Al Baraka banking group, though that too is Islamic.)

Within Bahrain, progress has included asset quality in income-generating assets; reductions in NPLs; increased income from foreign trade financing; more arranging roles; product diversification; and new branches. It signed memoranda of understanding with three Indian banks to finance Indian exports to African countries, and is arranging an Islamic finance deal to import sugar to Arab countries, as it looks for ways to harness trade finance trends and bring their financing through the Gulf.

Al Baraka Islamic is not the biggest in Bahrain – it has just six branches – but it’s the sense of direction that appeals. Standard & Poor’s rates the parent investment grade (BBB-).

The broader Al Baraka Group is a useful enterprise to be associated with. It is growing fast internationally – it recently announced an intention to acquire in Indonesia, and has a presence in Algeria, Tunisia, Sudan and South Africa as well as the more commonplace Middle Eastern locations – and takes the Islamic approach across all its locations. At the group level, assets stand at US$17.2 billion, up 8% year on year. In 2011 the group acquired 60% of Saudi Arabia’s Al Tawfeek Financial Group, changing its name to Itqan Capital. Worldwide, the group expects to reach 500 units within the next two years, across 15 countries.