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Gulf lenders eye Indonesia acquisitions

Central bank estimates nation's Sharia-compliant assets will soar by 55% this year

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Dubai: Albaraka Banking Group and Qatar Islamic Bank aim to acquire Sharia-compliant lenders in Indonesia as the central bank estimates the nation's Islamic assets will increase by as much as 55 per cent this year.

Albaraka, Bahrain's biggest publicly traded bank, plans to spend $100 million on an acquisition, Chief Executive Officer Adnan Ahmad Yousuf said in a March 28 interview in Istanbul.

Asian Finance Bank Bhd, Qatar Islamic's Malaysian business, has identified two or three lenders, while Standard Chartered Saadiq plans to open more branches at its Indonesian joint venture, according to the CEOs of the companies.

While Indonesia is home to the world's largest Muslim population, its 100 trillion rupiah ($11.5 billion) of Islamic banking assets are 10 per cent of Malaysia's. Sharia-compliant lenders weathered the global financial crisis better than non-Islamic banks, paving the way for expansion, according to the International Monetary Fund.

"Indonesia's Islamic finance industry is still in the embryonic stage so it is easier to achieve higher growth," Helmi Arman, an economist at PT Bank Danamon Indonesia in Jakarta, said in an interview on April 5.

"Given the Muslim population and the growth outlook, I don't see why Indonesia's Islamic banking industry will not grow as fast as the conventional one."

Bank Indonesia aims to increase Islamic banking assets by a minimum 45 per cent this year to try close the gap with Malaysia's 350.8 billion ringgit ($116 billion) sector.

About 86 per cent of Indonesia's 246 million people are Muslim, according to Central Intelligence Agency estimates.


The nation has 11 full-fledged Islamic lenders and 23 other banks that offer Islamic services. The government plans to start selling short-term treasury bills that comply with Islam's ban on interest for the first time in the second half of the year, Dahlan Siamat, director for Islamic finance at the Finance Ministry, said in an interview yesterday. Bank Indonesia already offers the securities.

"The large Muslim population means there is a good customer base for us to penetrate," Kuala Lumpur-based Mohammad Azahari Kamil, chief executive at Asian Finance Bank, said in an interview on Monday.

"Our strategy will be to acquire a Sharia unit of a bank or a full-fledged lender and hopefully the plan will materialise at the end of this year."

Albaraka Banking also plans to open branches in France and Germany by the end of 2012, Yousuf, the chief executive officer, said on March 28. The lender acquired Pakistan's Emirates Global Islamic Bank Ltd last year and began operations in Syria.

"We already sent a delegation to Indonesia last month to survey the market," he said. "We are having a delegation from Indonesia visit us in Bahrain around mid-April."

Dubai-based Standard Chartered Saadiq owns 44.5 per cent of Indonesian lender PT Bank Permata. Automotive retailer PT Astra International owns 44.5 per cent and 11 per cent is publicly traded.

Expansion opportunity

"We are deeply entrenched in Indonesia because it's a large country and growth is good," Afaq Khan, chief executive officer at Standard Chartered Saadiq, the Islamic unit of Standard Chartered Bank that generates most of its profit in Asia, said in an interview March 30. "We will continue to expand, increasing our products and branches."

Global sales of sukuk, which pay asset returns to comply with Islam's ban on interest, have reached $4.5 billion this year, from $2 billion in the same period of 2010, according to data compiled by Bloomberg.

The difference between the average yield for sukuk and the London interbank offered rate fell 10 basis points to 245 Wednesday, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index.

Average yields dropped five basis points, or 0.05 percentage point, to 4.51 per cent.

Sharia-compliant bonds gained 2.8 per cent this year, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index. Debt in developing markets rose 1.5 per cent in 2011, JPMorgan Chase & Co.'s EMBI Global Diversified Index shows.


The yield on Malaysia's 3.928 per cent dollar sukuk due June 2015 was unchanged at 2.90 per cent Wednesday, according to prices from Royal Bank of Scotland Group.

The difference in yields between Malaysia's sukuk and the Dubai Department of Finance's 6.396 per cent note due November 2014 narrowed five basis points to 223, Bloomberg data show.

The Bloomberg-AIBIM-Bursa Malaysia Sovereign Shariah Index, which tracks the most-traded ringgit-denominated government securities, was little changed at 101.754 Wednesday. The gauge has gained 0.7 per cent this year.

The $1 trillion global Islamic financial services industry may grow to $1.6 trillion by 2012, according to the Kuala Lumpur-based Islamic Financial Services Board, a standards setting body.

"With a very strong economic performance, there is an opportunity to expand in this large and important market," Maher Hasan, the IMF's deputy division chief of Europe, Central Asia and the Middle East at the Monetary and Capital Markets Department, said in an interview from Washington March 31.

Indonesia's gross domestic product will increase as much as 6.5 per cent this year, the central bank forecast on February 4.

The rate would be the fastest pace since 2004 and compares with 6.1 per cent in 2010. Moody's Investor's Service and Fitch Ratings lifted Indonesia's sovereign ratings to one level below investment grade this year. Coordinating Minister for the Economy Hatta Rajasa said March 17 that the nation may achieve investment status in the third quarter.

The yield on Indonesia's 8.8 per cent dollar-denominated Islamic bond due April 2014 was unchanged at 3.22 per cent Wednesday, according to prices from Royal Bank of Scotland Group.