Business | Banking

Banks plan Shariah assets for Asian millionaires

Standard Chartered, Malaysia’s CIMB tap prospects for Islamic private banking

  • Bloomberg
  • Published: 17:00 July 15, 2012
  • Gulf News

Standard Chartered will offer Sharia-compliant products to meet the needs of people
  • Image Credit: Bloomberg
  • Standard Chartered will offer Sharia-compliant products to meet the needs of people who have at least $2 million in Asia.

Kuala Lumpur/Hong Kong: Standard Chartered Plc will start Islamic private banking services in Asia and CIMB Group Holdings Bhd. plans to roll out new products for the wealthy as they target rich Muslims who have limited investment options.

The UK’s second-largest lender by market value will offer Shariah-compliant products tailored to meet the needs of people who have at least $2 million (Dh7.35 million), Wasim Saifi, the Kuala Lumpur-based global head for Islamic consumer banking, said in a July 6 interview.

Malaysia’s CIMB will market more instruments in the fourth quarter for clients with a minimum of 1 million ringgit (Dh1.15 million), Badlisyah Abdul Gani, chief executive officer of CIMB Islamic Bank Bhd., said in a July 10 interview.

CIMB says Islamic private banking has been slow to take off due to the challenge of creating enough investments that comply with Shariah law, while Standard Chartered estimates that seven out of eight Muslims globally bank according to non-Islamic principles.

The number of individuals in Asia Pacific with at least $1 million in investable assets reached 3.4 million last year, topping the number in North America, according to a report released in June by Capgemini SA and RBC Wealth Management.

“There are huge prospects for Islamic private banking,” Abas A. Jalil, CEO of Kuala Lumpur-based consultancy Amanah Capital Group Ltd., said in a July 9 interview. “There are many investors in Asia whose businesses have been doing well in the Middle East, Europe and America and they are looking at investing.”

Falling yields

Falling yields on Islamic bonds are cutting options for banks looking to boost returns for their wealthy Muslim clients. Global yields dropped six basis points this month to 3.38 per cent, the lowest level since January 2005, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index. The securities offered average rates as high as 4.49 per cent in 2010 and 6 per cent in 2007.

Standard Chartered plans to introduce Shariah-compliant structured products among its private-banking options, according to Saifi. Such investments are classed as higher-risk, often involve hedging, and are typically tied to movements of underlying assets, including equities. The lender, which earns most of its profit in Asia, will also offer mutual funds, he said. Private banking ranges from property investments to retirement planning.

“The wealthier the customer is, his requirements tend to be far more sophisticated when it comes to risk-management, diversification and yield-enhancement,” Saifi said. “Today, you can’t really say that an Islamic high net-worth individual would have the same options on the Shariah side as he would have on the conventional side.”

Higher incomes

Interest in financial products for wealthy Muslims will rise as economic growth in Asian nations outpaces the rest of the world, driving up incomes, according to CIMB.

The International Monetary Fund (IMF) estimates economies in developing Asian countries will expand 7.3 per cent this year and 7.9 per cent in 2013, according to its World Economic Outlook Update issued in April. That compares with 2.1 per cent and 2.4 per cent in the US, respectively. The Middle East and North African regions will grow 4.2 per cent and 3.7 per cent, the Washington-based lender said.

Standard Chartered has started offering Islamic private-banking products in Malaysia, Indonesia, Brunei, India and Pakistan through its offices in Singapore and Hong Kong, Saifi said. The bank announced on June 25 that Shariah-compliant wealth-management services would also begin in Dubai, London, Geneva and Jersey, according to a statement.

The number of millionaires in the Middle East rose 2.7 per cent to 450,000 last year, according to Capgemini’s report, which didn’t give a breakdown for the Asia-Pacific region.

“There is increasing demand for Islamic private banking,” CIMB’s Badlisyah said. “This area is a low-lying fruit as wealthy Muslims in Asia are under-served.”

Industry asset size

Islamic finance assets total $1.3 trillion globally and are growing at an average annual rate of 15 per cent, according to a June 27 statement from Malaysia’s Securities Commission. The Southeast Asian nation is the world’s biggest market for Shariah-compliant bonds.

Global sukuk are yielding 184 basis points, or 1.84 percentage points, less than the 5.22 per cent average on debt in emerging markets as increased supply fails to match demand. Islamic notes returned 5.5 per cent this year, according to HSBC indexes, compared with 9.3 per cent for securities in developing markets, JPMorgan Chase & Co.’s EMBI Global index shows.

Worldwide sales of Islamic bonds, which pay returns on assets to comply with Islam’s ban on interest, climbed 65 per cent to $25.5 billion in 2012 from a year earlier, according to data compiled by Bloomberg. Issuance reached a record $36.7 billion in 2011.

The difference between average global sukuk yields and the London interbank offered rate, or Libor, widened five basis points this month to 245 basis points, according to HSBC. That compares with 273 basis points at the end of last year.

Shariah-compliant private banking needs more time to establish records of historical performance and a wider range of products in order to grow, according to the Dubai-based law firm King & Spalding. The industry may then attract non-Muslims, Jawad Ali, deputy global head of the Islamic finance practice at King & Spalding, said in a July 9 interview.

“If the private banker has a good menu of Shariah-compliant products to offer, then the industry will grow,” Ali said. “The only way for Islamic private banking to entice conventional investors is to create a track record of producing better returns over a period of time.”

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