Friday, May 16, 2008

Overview of Takaful in Malaysia

The concept of takaful (Islamic insurance) was first introduced in Malaysia in 1985 when the first takaful operator was established to fulfil the need of the general public to be protected based on the Islamic principles. The legal basis for the establishment of takaful operators was the Takaful Act which came into effect in 1984.

Insurance as a concept does not contradict the practices and requirements of Shariah. In essence, insurance is synonymous to a system of mutual help. However, Muslim jurists are of the opinion that the operation of conventional insurance does not conform to the rules and requirements of Shariah as it involves the elements of uncertainty (Gharar) in the contract of insurance, gambling (Maisir) as the consequences of the presence of uncertainty and interest (riba) in its investment activities.

Takaful is an insurance concept in Shariah whereby a group of participants mutually agree among themselves to guarantee each other against a defined loss or damage that may inflict upon any of them by contributing as tabarru’ or donation in the takaful funds. It emphasizes unity and co-operation among participants. Takaful is not a new concept as it had been practised by the Muhajirin of Mecca and the Ansar of Medina following the hijra of the Prophet over 1400 years ago.

Tabarru’ is the agreement by a participant to relinquish as donation, a certain proportion of the takaful contribution that he agrees or undertakes to pay, thus enabling him to fulfil his obligation of mutual help and joint guarantee should any of his fellow participants suffer a defined loss. The concept of tabarru’ eliminates the element of uncertainty in the takaful contract. The sharing of profit or surplus that may emerge from the operations of takaful is made only after the obligation of assisting the fellow participants has been fulfilled. Thus, the operation of takaful may be envisaged as a profit sharing business venture between the takaful operator and the individual members of a group of participants.

Takaful operations are regulated and supervised by BNM since 1988 with the appointment of the BNM Governor as the Director-General of Takaful. In October 1995, the ASEAN Takaful Group (ATG), a grouping of takaful operators in Brunei, Indonesia, Malaysia and Singapore was formed to enhance mutual co-operation and to facilitate the exchange of business among takaful operators in ASEAN. In 1997, the Malaysian takaful industry took a leap forward with the formation of ASEAN Retakaful International (L) Ltd. (ARIL) as an offshore retakaful company in Labuan. The establishment of ARIL was to create a vehicle for more dynamic retakaful exchanges among ATG members and provides additional retakaful capacity to further reduce their dependence on conventional reinsurance.

TYPES OF BUSINESS
The takaful businesses carried on by the Malaysian takaful operators are broadly divided into family takaful business (Islamic "life" insurance) and general takaful business (Islamic general insurance).

Family Takaful Business
In general, a family takaful plan is a combination of long-term investment and mutual financial assistance scheme. The objectives of this plan are: -
• to save regularly over a fixed period of time;
• to earn investment returns in accordance with Islamic principles; and
• to obtain coverage in the event of death prior to maturity from a mutual aid scheme.

Each contribution paid by the participant is divided and credited into two separate accounts, namely: -
• The Participants' Special Account (PSA)
A certain proportion of the contribution is credited into the PSA on the basis of tabarru'. The amount depends on the age of the participant and the cover period.
• The Participants' Account (PA)
The balance goes into the PA which is meant for savings and investments only.
Examples of covers available under family takaful business are as follows: -
• Individual family takaful plans;
• Takaful mortgage plans;
• Takaful plans for education;
• Group takaful plans; and
• Health/Medical takaful.

General Takaful Business
The general takaful scheme is purely for mutual financial help on a short-term basis, usually 12 months to compensate its participants for any material loss, damage or destruction that any of them might suffer arising from a misfortune that might inflict upon his properties or belongings. The contribution that a participant pays into the general takaful fund is wholly on the basis of tabarru'. If at the end of the period of takaful, there is a net surplus in the general takaful fund, the same shall be shared between the participant and the operator in accordance with the principle of al-Mudharabah, provided that the participant has not incurred any claim and/or not received any benefits under the general takaful certificate.

The various types of general takaful scheme provided by the takaful operators include: -
• Fire Takaful Scheme;
• Motor Takaful Scheme;
• Accident/Miscellaneous Takaful Scheme;
• Marine Takaful Scheme; and
• Engineering Takaful Scheme.

Family takaful:
Individual plan: Mortgage, Health, Education, Travel, Family plan, Waqaf
Group plan: Group family, Group medical
Annuity: Employees Provident Fund, Retirement

General takaful:
Motor
Fire
Marine, aviation and transit
Miscellaneous Includes: Personal accident, Workmen corporation, Liability, Engineering, House owners

http://www.bnm.gov.my/index.php?ch=174&pg=500&ac=428

Wednesday, May 14, 2008

World's biggest retakaful group set up

BUSINESS TIMES Tuesday, May 13, 2008, 02.43 PM

ACR ReTakaful will have a capital base of US$300 million as well as two operating companies in its stable, to be based in Kuala Lumpur and the Middle East

KHAZANAH Nasional Bhd, together with the United Arab Emirates' Dubai Banking Group and Singapore's Asia Capital Reinsurance (ACR), has jointly set up the world's largest retakaful group with a capital base of US$300 million (RM945 million).

Khazanah and Dubai Banking will each directly own 40 per cent interest in ACR ReTakaful, while ACR will hold the remaining 20 per cent.

By virtue of Khazanah's 32 per cent stake in ACR, it will have the largest effective shareholding in ACR ReTakaful.

ACR ReTakaful will have two operating companies in its stable, which will be based in Kuala Lumpur and the Middle East.


http://www.btimes.com.my/Current_News/BTIMES/Thursday/Frontpage/KHACR-2.xml/Article/

Sunday, May 11, 2008

Partnership to help RHB Cap enter Gulf states

KUALA LUMPUR: Abu Dhabi Commercial Bank’s (ADCB) acquisition of a 25% stake in RHB Capital Bhd is positive for the latter as it can potentially grow its banking franchise in the booming Gulf states, although not quantifiable for now, according to a local research.

Aseambankers Equity Research said the deal could help RHB Cap move up the value chain and become one of the top three financial groups in Asean by 2020.

“While the deal will not trigger a general offer for the remaining RHB Cap shares, it has set a new benchmark for the latter’s share price,” it said.

ADCB had acquired the 25% stake in RHB Cap at RM7.20 per share for RM3.87bil from the Employees Provident Fund (EPF).

“At RM7.20, this represents a good 50% premium over the RM4.80 that EPF paid last year to gain control of RHB Cap,” said Aseambankers Research.

The latest deal valued RHB Cap at 2.2 times price/book for 2007, quite similar to valuations for the 20.2% block in EON Capital Bhd transacted early this year at 2.1 times, it said.

“In terms of valuation, ADCB is paying a price-to-earnings ratio (PER) of 20.1 times on historical financial year ended Dec 31 (FY07), and 17.6 times on potential FY08 earnings, according to our estimates,” it said.

The acquisition would see ADCB emerging as the second single largest shareholder behind EPF, whose stake would be trimmed to 57% from 82%. The EPF had also asked for a six-month extension to lower its shareholding in RHB Cap to 35% from the earlier deadline of mid-year.

Japan’s Sumitomo Mitsui Banking Corp may also take up a 5% stake in RHB Cap, which would pare down EPF’s stake to 52%.

Aseambankers Research said the EPF still needed to place out another 17% of RHB Cap by year-end.

Meanwhile, OSK Investment Research said ADCB’s entry should also be positive, as the latter was a leading full-service commercial bank operating in the Gulf Cooperation Council (GCC) region.

ADCB is also strong in the retail, commercial, corporate and high net-worth segments in the United Arab Emirates.

“With this new alliance, RHB Cap and ADCB can now position themselves to leverage on growing business flows between GCC and Asean as well as strengthen RHB Cap’s position as a global and regional Islamic banking player,” it said.

Saturday, May 10, 2008

Abu Dhabi bank to go big in sukuk globally

PUTRAJAYA: Abu Dhabi Commercial Bank (ADCB), the third largest bank in the United Arab Emirates (UAE) by market value, is positioning to capture the global sukuk (Islamic bond) market.

Chairman Saeed Mubarak Al Hajeri said Islamic banking in the UAE was not as developed as in Malaysia.

“We are positioning with someone who has the know-how, and creating vehicles to bring our sukuk business to No. 1 position with a 30% market share,'' he told a press briefing yesterday.

According to the Islamic Finance Information Service, the global volume of sukuk issued rose by 73% last year to US$47.1bil.

The Malaysian sukuk market over the last five years has registered an average 33% growth, with sukuk comprising 45% of bonds issued last year. This sukuk issuance was valued at US$17.5bil compared with just 17% or US$5.6bil years ago.

ADCB finds the appeal in RHB Capital Bhd's restructuring story, which was similar to what it went through a few years ago.

It also likes RHB's plan to double profits in three years and to become the top bank in South Asia in 10 years.

“We will support that vision,'' he said, adding that the RHB investment would be under the radar of ADCB's top management.

“We also have a structure in place to retain talent. The top 10% of our talent base has not left us and we intend to bring that to RHB so that people will regard that as the job to be in.''

ADCB did not consider its purchase of the RHB stake expensive, seeing that RHB had yet to unleash its full potential.

“Given the opportunity, we would like to own a bigger stake,'' said Saeed Mubarak, who is also a board member and head of the emerging markets department of the Abu Dhabi Investment Agency.

Iskandar Malaysia in Johor represents huge opportunities for ADCB, whose client and shareholder is the Mubadala group.

Among the master concessionaires and developers for the five zones in Node 1 of Iskandar Malaysia are Mubadala Development Co, Millenium Development Inter-national Co and Kuwait Finance House (KFH).

In line with the plan to strengthen and liberalise the local banking sector, the country has witnessed an influx of foreign banks lately.

Big names such as KFH, Al Rajhi Bank and Asian Finance Bank are already making their presence felt in the Islamic banking scene.

More Middle Eastern banks are also said to be eyeing Islamic subsidiaries of local banks.

“There is a huge interest in Malaysian assets and their potential,'' said Saeed Mubarak.

“Malaysia has stable regulations and a business-friendly environment. We aim to be the Warren Buffet-type of long-term investors and are here for investments, regardless of politics.''

Among recent global banking groups, ADCB will also contend with Australia and New Zealand Banking Group (ANZ), which has a stake in the AmBank banking group.

ANZ is already working quietly to transform the commercial banking operations and moving into investment banking. The results of these changes are believed to be evident in the coming financial results.

Abu Dhabi Commercial Bank’s boost for RHB Cap

KUALA LUMPUR: Abu Dhabi Commercial Bank’s (ADCB) acquisition of a 25% stake in RHB Capital Bhd is positive for RHB Capital as it can potentially grow its banking franchise in the booming Gulf States, although not quantifiable for now.

Aseambankers Equity Research said the deal could help RHB Capital’s transformation to move up the value-chain and to be one of the top three financial groups in Asean by 2020.

“While the deal will not trigger a general offer (GO) for the remaining RHB Capital’s shares, it has set a new benchmark for the latter’s share price.

ADCB had acquired the 25% stake in RHB Capital at RM7.20 per share for RM3.87bil from the Employees Provident Fund (EPF).

“At RM7.20, this represents a good 50% premium over the RM4.80 price tag that EPF paid last year to gain control of RHB Capital,” Aseambankers Research said.

The latest deal valued RHB Capital at 2.2 times price/book for 2007, quite similar to valuations for the 20.2% block of EON Capital Bhd shares transacted early this year at 2.1 times, it said.

“In terms of valuation, ADCB is paying a price-to-earnings ratio (PER) of 20.1 times on historical FY07, and 17.6 times on potential FY08 earnings, according to our estimates,” it said.

The acquisition would see ADCB emerging as the second single largest shareholder behind EPF, whose stake would be trimmed to 57% from 82%.

The EPF had also asked for a six-month extension to lower its shareholding in RHB Cap to 35% from the earlier deadline of middle of this year. Japan’s Sumitomo Mitsui Banking Corp may also take up a 5% stake in RHB Capital, which would pare down EPF’s stake to 52%.

Aseambankers Research said the EPF still needed to place out another 17% of RHB Capital by the middle or end of this year.

Meanwhile, OSK Investment Research said ADCB’s entry should also be positive as the latter was a leading full-service commercial bank operating in the Gulf Cooperation Council (GCC) region. ADCB was also strong in the retail, commercial, corporate and high net worth segments in United Arab Emirates (UAE).

“With this new alliance, both RHB Capital and ADCB can now position themselves to leverage on growing business flows between GCC and Asean as well as strengthen RHB Capital’s position as a global/regional Islamic banking player,” it said.

OSK Research said it expected the long-waited strategic tie-up with ADCB could be positive to the share price performance in the short-run. However, it believed the share price could still be traded below ADCB’s purchase price of RM7.20/share, and possibly even below its target price of RM7.

Assuming a 25%-strategic holding premium, it still believed RHB Capital’s share price could trade up to RM5.75/share in the immediate term.

“In the longer term, we are optimistic over the group’s prospect, as the financials of the group are fast improving amidst decent top line growth,” it said.

OSK Research said this latest foreign strategic tie-up should be value accretive for RHB Capital, especially in Islamic banking. It maintained its forecast and target price of RM7 for now.

Friday, May 9, 2008

Khazanah accord on world’s largest retakaful group

The Star - Thursday May 8, 2008

KUALA LUMPUR: Khazanah Nasional Bhd yesterday signed an agreement with the Dubai Banking Group (DGB) and Asia Capital Reinsurance (ACR) to form the world's largest retakaful group, ACR ReTakaful Holdings Ltd.
ACR ReTakaful will have a capital base of US$300mil and two operating companies to be based in Kuala Lumpur and the Middle East.
Khazanah and DBG will each directly hold 40% interest in ACR ReTakaful while ACR will hold the remaining 20%.
By virtue of Khazanah's 32% stake in ACR, it will be the largest effective shareholder in the retakaful group.
“This is an exciting investment for us, as it consolidates Khazanah's position as a key player in the regional reinsurance and retakaful sector,” Khazanah managing director Datuk Azman Mokhtar said in a statement.
This follows Khazanah's earlier investments of US$200mil in ACR to become the joint largest investor. It also has invested RM175mil in ACR Malaysia to become the major shareholder in the Kuala Lumpur-based reinsurance firm.


http://biz.thestar.com.my/news/story.asp?file=/2008/5/8/business/21186708&sec=business

Arab bank buys 25% RHB Cap stake for RM3.87b

The Star Online
KUALA LUMPUR: The Abu Dhabi Commercial Bank (ADCB) is acquiring a 25% stake in RHB Capital Bhd, which owns RHB Bank, from the Employees Provident Fund (EPF) for RM3.87bil.

In a joint statement issued on Thursday, the purchase price was at RM7.20 per RHB Cap share, which was nearly 38% above the price of RHB Cap shares of RM5.25 at midday.

At RM3.87bil, the deal is the largest investment to date by a Middle East investor into the Malaysian financial sector to date.

“The landmark investment will pave the way for a strategic partnership between the EPF and ADCB and drive RHB Cap’s ambition to become one of the top three financial service providers in Asean by 2020,” they said in a statement.

With the 25% stake, ADCB will become the second largest shareholder of RHB Cap. After this sale, the EPF, as the single largest shareholder, will reduce its shareholding from the 82% to 57%.

The EPF took control of RHB Cap after it acquired an 82% stake following the completion of a general offer in July 18, 2007.

Saturday, May 3, 2008

Al Rajhi closer to being a big player

Friday May 2, 2008
The Star

Al Rajhi closer to being a big player

KUALA LUMPUR: Al Rajhi Bank Malaysia is a step closer to realising its vision of becoming one of the fastest growing and leading foreign Islamic banks in Malaysia and the region.

It recently received Bank Negara approval in principle to set an international Islamic bank to undertake investment banking operations. The international Islamic bank to be set up would be a sister company of Al Rajhi Bank Malaysia, which is a subsidiary of Saudi Arabia-based Al Rajhi Bank.

Chief executive officer Ahmed Rehman said with the central bank approval, the bank hoped to commence its investment banking operations in the next few months.

“This move will allow us to have a broader portfolio comprising investment banking, retail and corporate businesses. It will allow us to make universal offering to our local as well as foreign customers, and differentiate us from our competitors,” he told StarBiz.

According to Ahmed, the licence would allow Al Rajhi to conduct non-ringgit transactions, hence allowing it to facilitate deals regionally.

The investment banking team was already on board at the bank's Kuala Lumpur office and ready to take off once the formality had been completed, he said.

The investment banking operation would be a direct branch office of the Saudi Al Rajhi Bank, and the reason being to facilitate large ticket transaction supported by the parent’s balance sheet, he said, adding that this would help tap Saudi and the Gulf's fast growing investment businesses and large customer base.

Ahmed said Al Rajhi Bank Malaysia expected to see the ratio of retail versus wholesale banking at 60:40 in two to three years and a more balanced portfolio moving forward.

Another differentiating factor of Al Rajhi compared with other Malaysian banks was in terms of financing.

“We provide financing to Middle Eastern investors looking for investment opportunities in Malaysia and, at the same time, Malaysian investors looking for similar opportunities in the Gulf.

“As the largest Islamic banking group in the world, we have the expertise to handle and execute large deals. One of it was financing the acquisition of a stake in Maxis Communications Bhd by Saudi Telecoms,'' he noted.

On the retail side, Ahmed said the underlying structures of products, turnaround time and branch experience were other differentiating factors.

For example, the Al Musafir prepaid riyal card enables pilgrims performing haj and umrah to withdraw denomination in riyals from the automated teller machine (ATM) network in Saudi Arabia.

He said all its branches were technology driven and manned by less than 10 staffs to enhance transactional efficiency and customer experience.

“Our biggest branch, with a built-up area of about 3,000 sq ft, only has eight staffs. All our operations are centralised and very technology driven. We don't have any tellers per se but only ATMs.

“This will enable our advisors to have more time to give good service and constructive advice to customers,” he said.

http://thestar.com.my/news/story.asp?file=/2008/5/2/business/21114814&sec=business