Asiamoney Islamic finance awards 2014

Asiamoney, April 2014

Best bank in Asia:

CIMB

CIMB remains the Islamic bank with the greatest pan-Asean strength, particularly in the capital markets.

Not only did it account for 26.2% of all issuance in Malaysian ringgit sukuk in our award period, totalling RM21.8 billion, it also handled 10.4% of all global sukuk, worth US$4.5 billion. During that time it led 157 Malaysian and 160 global sukuk: extremely impressive depth.

It’s true that many of its most impressive deals are Malaysian. Recent examples have included the first exchange-traded sukuk in Malaysia, part of the RM8 billion of Islamic commercial paper and MTNs for DanaInfra Nasional; jumbo issues such as up to RM10 billion Islamic MTNs for BGSM Management, RM3.8 billion for Cagamas, and RM3 billion for Telekom Power; and interesting structures for Kimanis Power, SP Setia and the acquisition of Malaysia Airlines. It’s also handled many important Islamic IPOs in Malaysia, including AirAsia X, UMW Oil & Gas, and Sona Petroleum.

But CIMB is also capable of bringing international, cross-border twists to its deals. Several times now it has taken Khazanah into foreign markets, most recently in a S$600 million sukuk exchangeable into shares of IHH Healthcare through Singapore dollars. Its work has helped to develop Islamic capital markets in Indonesia, Thailand, Singapore, South Korea, Hong Kong and the UK.

Beyond mainstream debt capital markets, CIMB also has a deep and experienced securitisation and structured finance team specialising in originating, structuring and executing hybrid securities, including Shariah-compliant Tier 1 and Tier 2 capital instruments of the banks, corporate hybrids, and perpetual capital securities. It has securitized auto loans, bonds, property and government receivables in a Shariah compliant manner. It is aided in this by one of the largest in-house Shariah advisory teams in the world.

Domestically, CIMB complements its Islamic banking smarts with a growing retail and consumer presence. It boasts the most Islamic consumer banking products in Malaysia, if not the most assets or clients, and its product set is characterised by innovation with a heavy focus on digital features and e-payments. Last year it launched the ‘Bank in a Briefcase’ system to try out a paperless 10 minute approval process for ASB loans, debit cards, savings and takaful. It serves eight million customers in its home market.

Increasingly, though, that approach is being rolled out regionally; a new catchphrase at the bank is “Asean for you.” The clearest illustration of this to date is in Indonesia, where its CIMB Niaga Syariah business is making strides. It’s notable, too, that the CIMB-Principal Islamic asset management business is producing more regional products, with its Islamic Asean equity fund performing well in a difficult year.

It’s entirely possible that one day Indonesia and other Asean markets will contribute more to CIMB Islamic profits than Malaysia does. CIMB Islamic is setting itself up for that idea, and welcoming it.

Best bank in Malaysia:

Maybank

CIMB may still be the leader in the capital markets, but it is time to acknowledge the increasingly impressive performance of Maybank in the bread and butter of Islamic banking in Malaysia.

Maybank set a target for Islamic financing to contribute one third of the group’s total domestic loans and advances by 2015. It’s way ahead of target; by December 2013 Islamic business was already contributing 38.9% of the group total.

Moreover, all parts of the business are growing fast. Total income from Islamic businesses grew 25% year on year to the end of 2013, to RM2.3 billion, while profit before tax grew 17% to RM1.4 billion. Total assets grew faster still, up 37% to RM125.1 billion; Maybank reckons this constitutes 29% of the entire Malaysian industry. Financing grew 40% to RM86.9 billion, and customer deposits 17% to RM83 billion.

Within those broad metrics, progress is well diversified too. So, for example, the increase in financing was across the board: auto up 35%, house finance 23%, trade finance 41%. Yet the increase has not come at the expense of prudence; the gross impaired financing ratio declined from 0.85% to 0.66% between 2012 and 2013.

Like CIMB, rather than just chasing assets, Maybank has sought to bring innovation to retail banking too. Its new One Solution-I product is designed for the urbanized mass market, and combines seven elements into a single solution. There is also a new product to assist SMEs with viable businesses using commodity murabahah contracts, and a pioneering web-based trade finance product that is available, in a Shariah-compliant form, in 10 countries.

We don’t oust CIMB from this award lightly – and as the regional award shows, it’s not that the usual winner of this award is doing anything wrong. But it no longer has an unassailable position of leadership, and that is a credit to groups like Maybank.

Best bank in Indonesia:

Bank Syariah Mandiri

There are three fully-fledged Shariah banks in Indonesia: Bank Syariah Mandiri, Bank Muamalat and Bank Syariah Mega. Mandiri’s Islamic arm remains the institution that looks best placed to take up the enormous opportunity Islamic finance offers in Indonesia.

President Director Yuslam Fauzi has stated some big ambitions for the bank: last March he said he wanted the bank to increase its profit 50% over 2013, from Rp800 billion in 2012 to Rp1.2 trillion in 2013. At the time of writing the full-year number was still not available to show if the management had succeeded, but at least they’re aiming high.

The bank is helped considerably by the heft of its parent: because of it, it can boast a presence in 796 offices in 33 Indonesian provinces, with all the headcount supply it needs. It has started out doing the simple stuff well – auto financing and so forth – which is fair enough, since there is so much to be done at a grass roots level that it makes sense to capture that market before venturing into Malaysia-style innovation.

Best bank in Pakistan:

Meezan Bank

At the time of writing, Meezan Bank appeared to be preparing to take over HSBC’s operations in Pakistan, having been given permission by the State Bank of Pakistan to conduct due diligence on the global lender’s local operations in February. If it goes ahead, the deal would underline the momentum at Pakistan’s largest purely Islamic lender.

The bank grew significantly in 2013, logging a Rs3.96 billion profit compared to Rs3.51 billion the previous year. Earnings per share were up, there was a healthy 5% cash dividend on top of a 15% payment earlier in the year, deposits grew 26% to Rs290 billion and the financing portfolio grew 44% to Rs128 billion. In 2013 alone, the bank opened 41 branches: by the end of 2013 it had 351 across 103 cities.

There is product innovation too. In February it launched Meezan Kafalah, billed as a Shariah-compliant alternative to bancassurance, alongside Pak Qatar Family Takaul. This is, Meezan says, the only takaful product that accumulates 100% cash from day one.

It is also instrumental in the development of national policy on Islamic finance, which will be enormously important in a high-population Muslim state like Pakistan. Meezan’s president and CEO, Irfan Suddiqui, and its chief Shariah advisor, Imran Usmani, have both been named on a steering committee on the development of Islamic finance by Pakistan’s finance minister, Mohammad Ishaq Dar.

Best bank in Brunei:

Brunei Islamic Bank Darussalam (BIBD)

By far Brunei’s biggest bank of any type, and its flagship Islamic financial institution, BIBD is approaching 10 years since its 2005 formation by a merger of two earlier Islamic financial institutions. Largely state-owned, it is considered instrumental in Brunei’s National Vision 2035, which seeks to cement Brunei as a developed nation with an economy broader than oil.

One doesn’t have to be huge to lead the way in Brunei: BIBD has 14 branches and that’s comfortably the most in the country. It leads the market in assets, financings and deposits, with total group assets of over B$6 billion. It is profitable, well capitalised and well provisioned.

Its consumer banking roots still provide the bulk of the business – 53% of revenue when last disclosed – while corporate and institutional banking are also present. BIBD was the first institution in Brunei to launch mutual funds domiciled locally, and it has subsidiaries for hire purchase and fixed deposits, brokerage and takaful. Capital markets activity is in its infancy, but BIBD still proudly boasts its landmark roles: sole arranger on a US$83 million ijara financing facility for Brunei Gas Carriers in 2012, and a mandated lead arranger for the Islamic Development Bank’s US$850 million sukuk back in 2008. BIBD is, it says, the only Bruneian bank ever to have won international mandates.

Best Bank in the Middle East:

Abu Dhabi Islamic Bank

This award has for many years gone to Saudi Arabia’s Al Rajhi, which remains the biggest Islamic bank in the world by assets. But Abu Dhabi Islamic Bank has brought a clear sense of strategy and a sense of momentum that cannot be ignored.

The UAE award below describes in detail what ADIB has done right at home, but it is interesting to see how it has built on that presence in recent years. By no means small, it ranks itself the fourth largest Islamic bank in the world, with total assets of AED103.1 billion at the end of 2013, having grown at a compound 11.1% annually over the previous three years and doubled its asset base in five. And with that scale has come an increasing international shift: it has 75 branches in Egypt, through its ownership of National Development Bank Egypt, and has set up in Saudi Arabia, Sudan, Iraq, Qatar and the UK.

It has expanded without any sign of its financial metrics deteriorating. At the end of 2013 its capital adequacy ratio under Basel II was 16.86%, and its tier one ratio 16.42%.

ADIB has also caught the eye in the Islamic capital markets, as an issuer as much as a bookrunner. The hybrid tier one sukuk it launched in 2013 was the first Islamic security of its kind, and the first public tier one instrument from the Gulf in any form; it continues to be talked about and used as a model now, and was great business for ADIB, which gained US$1 billion in funding at one of the lowest rates ever secured by an Islamic bank.

As an underwriter, it is increasingly active in some of the region’s most important deals. Recent examples have included a landmark amortizing sukuk for Emirates, the first international corporate hybrid sukuk from the region for GEMS, and a project financing on the EMAL aluminium smelter project.

Best bank in the United Arab Emirates

Abu Dhabi Islamic Bank

Within the UAE, ADIB has built a strong 80-branch presence. With 590 ATMs, it is the third largest retail network in the country. It services just under 600,000 customers at home.

Majority-owned by members of the Abu Dhabi royal family and a sovereign wealth fund, it could not possibly have better backers in the UAE; they want to see the bank turn into a regional and local Islamic powerhouse. Aside from scale, they want it to be good, and this starts on the retail side, where the bank has won a number of awards for service quality.

To keep those customers, it has been trying to bring innovation to Islamic retail. It launched, for example, the first Islamic telecom reward payment card, the ADIB-Etisalat co-branded cards. It has built an attractive loyalty rewards program, ADIB Bonus; every six months, one ADIB salary account holder wins two years worth of salary. (Quite how this steers clear of Islamic restrictions on gambling is not immediately obvious, but perhaps it is because the capital itself is not put at risk.) ADIB has launched a savings account called Ghina, within which the level of savings increases rewards, using the Mudarabah structure. And the bank has launched a financial education campaign, called Smart Money, including a financial health check for customers. There are also partnerships with Etihad and the UAE Football League, and a new children’s account based on the principle of Heba, or donation. Other innovations come in takaful, priority banking and mobile banking.

On the corporate side, the regional write-up details some of the interesting transactions the bank has been involved in both as an arranger and an issuer. The bank has a diverse private sector base alongside its institutional and government clients, and now offers transaction banking, project finance advisory, syndications and structured finance.

Best bank in Saudi Arabia

Al Rajhi

While Al Rajhi doesn’t pick up our regional award this year, it remains the world’s biggest Islamic bank by assets and is indisputably the Islamic finance leader in Saudi Arabia.

In January CEO Suliman bin Abdulaziz Azzabin announced the full-year results for 2013, and as is almost always the case, they exhibited steady, low-risk progress. Total assets reached SAR279 billion, up 4.6% on a year earlier; customer deposits increased by exactly the same percentage to SAR231 billion; net profits on finance and investments were up 3% to SAR9.65 billion. It gave investors a 20% return on equity.

You don’t go to Al Rajhi for wild new ideas and ventures, but nevertheless the bank is not standing still. Its priority in recent years has been a diversification of revenue sources, developing investment and banking services. The Al Rajhi Capital business in particular continues to be successful and innovative in brokerage, asset management and investment banking, and at the end of the year closed a heavily oversubscribed real estate income fund, illustrating how clients will always look to Al Rajhi for stable funds that will bring them reliable income without undue risk.

Still, retail and corporate relationships will continue to be the heartbeat of Al Rajhi; the bank has 500 branches in Saudi Arabia in addition to 28 international (it is strong in Malaysia and growing in Jordan, among other places), and it boasts a network of 3,644 ATMs as of the end of December.

Best bank in Kuwait

Kuwait Finance House

KFH was at one time the clear regional leader in Islamic finance, but has dropped back a little through the financial crisis just as Kuwait itself has faced difficult times. But all the bank’s latest numbers suggest an institution that is on its way back.

KFH’s full year numbers for 2013 showed a 7% increase in total revenues to KD996.178 million, an 11% climb in gross profit to KD292.018 million, and a 32% increase in net profit for shareholders to KD115.893 million. EPS was up 23%, total assets up 10% to KD16.14 billion, total deposits up 8% to KD10.104 billion, and shareholders’ equity rose 30%.

All of this reflects a new strategy, announced in 2011, to change KFH’s approach. Central to the new vision were reduced expenses, strong asset quality, and better returns through entering new markets. KFH also increased its share in its subsidiaries, grew in retail and made a push for government projects involving the private sector. Finally, it increased capital.

KFH has long been known for being good at specialist areas, like aircraft finance. Today, one finds it in a wide range of projects and opportunities, helping Diyar Al-Muharraq develop an entire city of an entire city in the sea off Bahrain, arranging US$500 million of ijara facilities for Sharjah Electricity & Water Authority, and arranging a landmark sukuk for the Turkish sovereign.

At home, KFH now has 57 branches in Kuwait, and now serves 6,000 retailers and suppliers in Kuwait. It has opened investment deposits through ATM machines in a program called Al-Shamel, and has upgraded its internet and mobile banking services, launched a gold account and built services and offerings for female clients.

Best bank in Qatar

Qatar Islamic Bank

Qatar is now home to an increasingly strong competitor in Barwa, but for the moment Qatar Islamic Bank has an impregnable sense of scale and connection that retains it this award.

QIB’s last reported figures showed QR77.35 billion in assets. That not only gives it a 35% share of all Islamic banking in Qatar, but 9% of the entire banking market.

As in many Gulf states, one doesn’t need huge infrastructure in order to cover everything: QIB has 32 branches, and that’s all that’s necessary. That base supports a bank that is not only dominant but growing: net profit for 2013, at QR1.34 billion, was up 7.6% year-on-year. The bank rewarded shareholders with a profit distribution of 40% of nominal share value, a terrific return.

Total assets grew 5.7% last year, while financing activities grew faster still, by 9.3%, to QR47.1 billion. Customer deposits are on the steepest trajectory, growing 16.7% last year to QR50.4 billion. This is key: that base allows the bank to fund its asset growth and financing activity. All of this has happened at the same time as bringing down NPL levels to just 0.9%, one of the slimmest in the region.

Although it might look like a slow state behemoth, it has done well in developing mobile banking and new product launches, from structured treasury and payroll to travel and auto takaful, sukuk trading and debit cards.

But perhaps what sets the bank apart the most is its level of connectedness with Qatar itself. In 2013 it completed murabaha financings for Gulf Cement, Al Mana and Gulf Trading Company, and an ikara for Ghanem Al Hudfi. It provided much of the QR3.7 billion financing for the Qatar Railway’s Red Line North, and perhaps this infrastructure expertise will prove to be the most crucial as Qatar moves closer to the World Cup, with all of the attendant infrastructure that requires.

It’s also worth mentioning that QIB is the largest shareholder in QInvest, which is (notwithstanding the state holding in QIB) a private sector regional investment bank, almost unique in the region in that it is not anchored by a big commercial parent. The QInvest model will be interesting to watch: helmed by a former Goldman Sachs man with a former Credit Suisse executive as his deputy and head of investment banking, it is trying to bring the best of those institutions to Gulf finance in a Shariah-compliant way.

Best bank in Bahrain

Albaraka Bank

Al Baraka gets ever bigger, and now covers 15 countries through 480 branches with authorized capital of US$1.5 billion. It eschews Qatar, Kuwait and the UAE to look further afield: Jordan, Tunisia, Sudan, Turkey, Egypt, Algeria, Lebanon, Libya, Syria, Iraq and several further-flung locations (plus Saudi – the Gulf can’t be ignored completely).

But Bahrain is home base, and where the approach for the rest of the world is set. From here, an increasingly impressive performance is orchestrated: 10% growth in group net income to US$258 million in 2013, with a 10% increase in total assets (US$21 billion), 7% in total finance and investments, and 8% in customer accounts.

Business is not as easy as it once was in Bahrain; the role of ever-peaceful entrepot for the region is gone in light of social discontent. But Al Baraka continues to be strong at home despite the circumstances, offering a dependable service in retail, corporate, treasury and investment banking.