Friday, June 26, 2009

EON Cap plans RM1bil fund-raising exercise

Friday June 26, 2009
EON Cap plans RM1bil fund-raising exercise

It hopes to raise at least RM500mil from the Tier 1 capital programme

KUALA LUMPUR: EON Capital Bhd has submitted an application to raise RM1bil in Tier 1 capital, barely a week after Bank Negara rejected the group’s plan to sell new warrants to shareholder Primus Pacific Partners LLC for RM29.5mil.

“We hope to raise at least RM500mil from the RM1bil innovative Tier 1 capital programme,” chairman Tan Sri Syed Anwar Jamalullail told reporters after the group’s AGM yesterday.

He said the proposal on the fund-raising programme was submitted to the Securities Commission yesterday.

EON Cap director Rodney Ward said the group’s current core capital ratio would strengthen to just below 11% from the current 9.7% with the additional RM500mil in fresh funds from the upcoming issue.

“We don’t want the bank to be over-capitalised,” Syed Anwar said when asked why the bank planned to raise just half the proposed amount.

Ward explained that the innovative Tier 1 capital raising programme was a special investment instrument designed to appeal to long-term investors. EON Cap has appointed CIMB Bank Bhd and its own unit MIMB Investment Bank Bhd to develop the instrument.

Recently, some analysts opined that EON Cap has ample room to raise as much as RM1.5bil in Tier 1 capital to shore up its working capital.

Ward said the bank would also continue to look at other capital raising options, but was “not under the gun to do so” at this moment.

EON Cap’s capital position was put under the microscope after Bank Negara rejected the proposed sale of new warrants to Primus last week without disclosing the reasons behind the decision.

Syed Anwar said that the amount to be raised from the warrants sale was small, and would only improve the bank’s core capital ratio by 0.15% if the issue were to go through.

Assuming the warrants were fully converted into EON Cap shares, Primus’ stake would increase to 26.4% from 20.2% currently.

Primus was reported to be appealing against the decision by Bank Negara.

On another note, Syed Anwar said the group had narrowed the candidates to lead the bank following the retirement of former chief executive officer Albert Lau in April.

“We hope to appoint one before the end of the year,” he said.

Syed Anwar said consumer loans at the bank grew at a steady rate of 6% so far this year, although corporate lending activities showed a contraction due to the sharp decline in trade finance.

The group’s asset quality showed some deterioration in the first quarter, mainly due to “two loans” that were being restructured.

“In the current quarter, asset quality has improved, while at the same time we have also expanded our loan recovery unit,” he said.

http://biz.thestar.com.my/news/story.asp?file=/2009/6/26/business/4196919&sec=business

RHB Cap to expand in Vietnam

Friday June 19, 2009
RHB Cap to expand in Vietnam

It has set its sights on a full banking licence there

KUALA LUMPUR: RHB Capital Bhd (RHB Cap), the fourth largest financial services group in the country, plans to expand its presence in Vietnam eventually, through a full banking licence.

The group currently has a 49% stake in retail brokerage Vietnam Securities Corp which it acquired in November last year.

Outgoing group managing director Michael Barrett told a press briefing after the group’s AGM yesterday that for now, RHB Bank Bhd had representative offices in Ho Chi Minh City and Hanoi.

He added that it was the long-term intention of the group to obtain a full banking licence in the country. Barrett said this would come “in due course” when the banking and financial landscape became more open.

He also did not rule out the possibility of raising RHB Cap’s stake in Vietnam Securities. Barrett said current regulations did not allow the group to acquire a majority stake in a Vietnamese financial firm.

“We’re looking at taking a local retail brokerage that has the capabilities to do investment banking and corporate finance to expand our initiatives,” Barrett said, adding that the group was also interested in expanding its presence in the South-East Asian region.

Meanwhile, he expects loans growth of between 5% and 7% for the current financial year as “significant signs of recovery” began to show in the fourth quarter.

He said home loans, personal financing and credit cards were areas in which the group saw growth but motor vehicle loans and loans to small and medium-scale enterprises were down due to the more challenging economic environment.

He said non-performing loans (NPLs) increased to 2.57% in the first quarter but had come down recently. For the financial year ended Dec 31, 2008, NPLs were lower at 2.24% against 2.43% 2007 while loan-loss coverage rose to 90% from 71% previously.

Barrett said although NPLs were higher in the first quarter, the absolute number had not gone up. He said this was largely due to the lower loan base in the quarter.

http://thestar.com.my/news/story.asp?file=/2009/6/19/business/4148210&sec=business

Tuesday, June 23, 2009

Takaful Malaysia eyes 10% increase in customer base with Takaful myDesk

Tuesday June 23, 2009
The Star

KUALA LUMPUR: Syarikat Takaful Malaysia Bhd (STMB) targets a 10% increase in customer base from 400,000 currently for its financial year ending June 30, 2010 with the launch of its latest initiative – Takaful myDesk – with Lembaga Tabung Haji (LTH).

Takaful myDesk is a one-stop centre for customers to carry their takaful transactions for all general and family-related takaful products at various LTH branches.

Through Takaful myDesk, STMB also hopes to achieve RM1mil worth of premium contributions in its first year of operations.

STMB group managing director Datuk Hassan Kamil said the collaboration was part of its strategy to enhance access to wider potential customer base, through sharing of database.

“We see this ‘smart partnership’ as a strong platform for various business opportunities, including cross selling of insurance products with investments and savings. We also hope to further reach out to customers, especially in remote areas, utilising LTH’s extensive network nationwide,” he said at the launch yesterday.

He added that the cost of the initiative was minimal as all that was required was Internet connectivity and one staff to man the desk located at LTH’s branch.

STMB’s majority shareholder is BIMB Holdings Bhd, with a shareholding of 65.22%. LTH in turn, is a majority shareholder in BIMB, holding 41.92% shares.

LTH group managing director and chief executive officer Datuk Ismee Ismail said with the inclusion of the Takaful myDesk to its list of additional services, it hoped to help promote the Islamic financial services sector within Malaysia. “Since the introduction of Takaful myDesk at our Jalan Tun Razak branch, LTH’s depositors have been very receptive towards the concept and execution of this new service,” Ismee said.

Due to this encouraging response, Hassan said that they had identified 11 other LTH branches to carry this service, and would be implemented in stages within the next six months.

http://thestar.com.my/news/story.asp?file=/2009/6/23/business/4172502&sec=business

Stronger base for insurance sector

Tuesday June 23, 2009
Stronger base for insurance sector

KUALA LUMPUR: The local insurance industry is undergoing a transformation to provide a strong foundation for a more resilient and competitive industry in support of Malaysia’s economic development agenda.

Bank Negara assistant governor Datuk Muhammad Ibrahim said Malaysia had implemented the risk-based capital framework this year and new product regulations.

He said these developments were part of a broader move towards introducing a more principle-based regulatory regime that would allow greater flexibility for insurers to compete and improve performance.

“Later this year, Bank Negara will consult the industry on risk management standards that insurers are expected to observe as part of this evolution,” he said in his keynote address at the LOMA/LIMRA 17th Annual Strategic Issues Conference yesterday.

The conference, themed The New Global Economy: Resilience in Challenging Times, is jointly organised with the Life Insurance Association of Malaysia.

It aims to serve as a platform for captains of the financial services sectors operating in Asia to discuss the latest development in the industry.

Muhammad said the distribution channels for insurance products and services had also been broadened significantly with the development of bancassurance and financial advisers.

“This will contribute towards enhancing revenue and reducing costs, while enhancing consumer protection and improving the insurance penetration rate in Malaysia,” he said.

In April, Bank Negara announced a liberalisation package for the financial sector aimed at strengthening Malaysia’s economic inter-linkages with other economies and enhancing the role of the financial sector as a key enabler and catalyst of economic growth.

In the insurance sector, the measures included the issuance of new family takaful licences with higher limits of up to 70% on foreign equity participation in insurance companies and takaful operators, and incentives for the consolidation and rationalisation of the insurance industry.

They also included the removal of restrictions on the establishment of branches and bancassurance tie-ups, and greater flexibility to employ specialist expatriates. — Bernama

http://thestar.com.my/news/story.asp?file=/2009/6/23/business/4171897&sec=business

Changes to spur insurers’ revenue

Tuesday June 23, 2009
Changes to spur insurers’ revenue
The Star

‘Transformation’ of agents will protect consumers’ interest

PETALING JAYA: The changes that the insurance sector is going through may help boost its revenue and productivity and enhance the concept of need-based selling, industry players said

The move is in line with Bank Negara’s call to enhance professionalism in the industry and safeguard customers’ interest, they added.

The exercise involves the “transformation” of agents into professional wealth planners who will also sell products like unit trusts and takaful and offer will-writing services apart from selling insurance.

Prudential Assurance Malaysia Bhd chief agency officer Lai Leong Pin said since embarking on an agency transformation exercise last year, the company had converted about 1,800 agents to wealth planners from a total agency force of about 9,000.

“This year, we plan to train an additional 1,800 to 2,000 agents to become wealth planners. In the next five years, we expect to transform between 40% and 50% of our total agency force into wealth planners,” he said in interview.

“Besides boosting the company’s revenue, these professionals will also enhance the productivity of the agency force. Last year, our agency’s average productivity was among the highest in the industry, with about RM69,000 in first year new business premiums.’’

To be qualified as Prudential wealth planners, Lai said an agent must be productive, have met various licensing requirements and undergo external or intensive in-house training.

The in-house training provided by its PRUbusiness academy covers wide-ranging modules that include introduction to wealth planning concepts, products and technicalities and personal effectiveness.

For external programmes, the candidate must have sat for the Registered Financial Planner or Certified Financial Planner examinations. In terms of productivity, the agent must bring in new business premiums worth at least RM200,000 annually.

Meanwhile, Great Eastern Life Assurance (M) Bhd is targeting to have at least 3,000 Life Planning Advisors (LPAs), similar to the wealth planner concept, by 2010.

Its director and CEO Koh Yaw Hui said since launching the LPA programme in December 2006, the company had 600 agents certified as LPAs as of last year.

“The programme is one of the key pillars of the Agency Transformation Project. As such, we are investing substantially to ensure that the professionalism and productivity of our agency force is elevated.

“This is also in line with Bank Negara’s call for higher professionalism from agency force in conducting their business to ensure that consumers’ interests are constantly being looked after,’’ he said.

According to Koh, the LPAs are trained to serve the clients’ financial needs in the core areas of protection, savings/investment, education, and retirement.

Going forward, he said LPAs would be trained under the Great Eastern Life Planning Advisory Service Centre to provide them with comprehensive financial solutions in estate planning services, will writing, unit trusts and tax consultation to penetrate high net worth clientele base.

This would allow them to become full-fledged multiple financial service providers within the next one year or so, he said.

Manulife Holdings Bhd group CEO Michael Chan said he expected 300 of the company’s total agency force of 1,500 to be certified as wealth planners by year-end.

The certified wealth planners were projected to constitute 50% of its agency force by 2010, he added.

“It is estimated that only 15% of agents in the industry are familiar with selling wealth management products. Therefore, proper training is required for an agent to obtain a licence and understand the financial planning process.

“We have a dedicated centre to train and ‘transform’ our agents into wealth planners,’’ Chan said.

http://thestar.com.my/news/story.asp?file=/2009/6/23/business/4170041&sec=business

Monday, June 1, 2009

Growing Pains - Islamic finance is well positioned but faces governance challenges

C F A M A G A Z I N E M A Y – J U N E 2 0 0 9

KEY POINTS
• Islamic banks were largely spared the effects of the toxic assets at the heart of the global credit crunch.
• To take advantage of opportunities, Islamic financial institutions need to improve governance practices.
• Lack of standardization poses a challenge for practitioners, regulators, and investors.

Islamic banks, which shy away from leverage, have been largely buffered from the toxic debts of the credit crunch, now estimated by the International Monetary Fund to reach as high as US$4 trillion. Unlike mainstream houses, Islamic institutions are still growing. Their financial assets are estimated to be worth US$750–US$800 billion, having grown at a compound
annual rate of 20–30 percent over the past decade, according to a September 2008 research report by Morgan Stanley. This figure is widely expected to exceed US$1 trillion by 2010, and some consultants believe it could go as high as $2 trillion.

“Because of the global credit crunch, the potential for Islamic banking is now brighter than the potential of the conventional system,” explains Wohid Islam, legal counsel for the Qatar Investment Authority, the sovereign wealth fund of the state of Qatar.

Islamic finance is governed by Shariah law, which prohibits usury, making it difficult to offer debt, interest, or leveraged products to the market. Shariah-compliant institutions are also prohibited from making investments in companies involved in tobacco, weapons, gambling, alcohol, or porkrelated products. Shariah-compliant supervisory boards must approve each product, adding an extra layer of governance to the mix.

Growth in the industry has come largely from debt-based products. Sukuks are Islamic bonds that offer coupon profits instead of compound interest. They are the fastest growing area of the market.

Challenges to Growth

And yet, for the industry to reach its potential, there are growing pains to resolve. In 2007, Sheikh Muhammad Taqi Usmani, chairman of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOFI) said that 85 percent of all Gulf Islamic bonds do not fully comply with Islamic laws. Hedge funds and structured products have also caused controversy, with critics saying that some Shariah scholars, who sit on the boards of multiple financial institutions because of rising demand, are often too well paid or too unfamiliar with products to make fair decisions. Very few of the Shariah scholars have financial backgrounds, and most have had to learn about the industry as they went along.


“Islamic financial products are subject to the same regulation as any other financial product, whether they are offered in Europe, Asia, Africa, or anywhere else.”

One hedge fund of funds manager, after being given approval to develop a product by his own Shariah board, was startled to discover that other scholars at different institutions would not allow the product to be distributed. “It’s ridiculous to go ahead with something which takes up time, energy, and money only to then find out that there’s no consensus and you can’t launch the thing anyway,” he complains. “There needs to be some sort of coherent approach, we have to be able to trust our advice.”

Regulators are trying to deal with the issue. “Islamic financial products are subject to the same regulation as any other financial product, whether they are offered in Europe, Asia, Africa, or anywhere else,” says Shaykh Yusuf Talal DeLorenzo, a leading Islamic scholar and adviser to the Dow Jones Islamic Market Indices. “Owing to the special nature of Islamic finance products, however, some jurisdictions have established an extra level of supervision. Such measures are welcomed by the industry.”

But even this is proving tricky. Malaysia has tackled the issue by developing its own Shariah board at a regulatory level to provide centralized oversight. But the Gulf Cooperation Council (GCC) and stricter Muslim nations feel Malaysia’s approach to Shariah compliance is far too liberal and relaxed.

“Investors here are not willing to invest in the products that are approved by Shariah boards in Malaysia,” explains Mohammad Shoaib, CFA, chief executive of Al Meezan Investment Management in Pakistan.

In most of the GCC, Shariah governance is devolved to the bank level. “It is almost privatized, and as a result there is quite a lot of variation in systems of governance. You don’t get standardization, and there are issues about the appointment of Shariah scholars and what qualifications they have and how many boards they sit on,” explains Rodney Wilson, professor of Islamic finance at Durham University and visiting professor at Qatar University. Wilson is also chair of the academic committee of the Institute of Islamic Banking and Insurance in the United Kingdom. “There is one scholar who sits on the boards of 55 institutions,” he points out. “We have published guidelines that highlight some of these issues, not least of which is confidential access to information.”

Unlike Malaysia, Dubai does not believe in a centralized approach to governance and regulation. “We don’t think we are qualified to be Shariah arbitrators,” insists Nik Thani, executive director of Islamic finance at the Dubai International Finance Centre (DIFC). He believes that Malaysia has limited its options by centralizing. “They have an excellent Islamic finance market, and it’s very efficient. But the backbone of their structure is not something that is recognised outside of Malaysia. Shariah law is like common law. It is dynamic, and it evolves. It’s difficult for a government to shift its position. We leave it to market players to develop products that will appeal to their clients.” Thani also points out that unlike other religions, Islam has no central authority. “We need a more collaborative approach between the various regulators,” he says.

Standardization

For some observers, standardization is a difficult concept. “From my perspective, you stifle development by having total standardization. If you had a universal Shariah committee, there would be more certainty to the market, but the downside would be a lack of innovation,” says Richard Thomas, managing director of GSH UK, the UK investment arm of a Kuwaiti-based real estate firm. He believes that a large amount of standardization has already been put in place. “What is universally agreed upon is far greater than areas where there is some conflict. A lot of the controversy has come up from the way that different organizations have exploited the industry and encouraged inappropriate uses for instruments like sukuks.” Others argue that standardization wouldn’t be necessary if international banks hadn’t jumped on the bandwagon and come into Muslim countries with the idea of paying lip service to Islamic
banking by pushing every esoteric structured product through the system. They believe that Islamic banks should continue to do what they are good at— follow classic banking models, with
financing to come from deposits. Then there are those who favor practical standards. “You don’t have to standardize products, but there’s nothing wrong with standardizing procedures,”
says Wilson. “There are different principles of Islamic jurisprudence, but there’s no reason why principles can’t be done in a way that gives confidence to the market.”


ISLAMIC BANKINGCONVENTIONAL BANKING

1. Money is not a commodity, good, or service. It has no price of its own and cannot be used in lending or borrowing for a price (i.e., interest).

2. Money is priced based on the concept of time value of money/opportunity cost, in
addition to the level of risk inherent in a given transaction.

1. Financing activities must be backed by tangible assets.

2. Financing activities are mostly carried out back to back without being asset backed.

1. Money (a stream of cash flow) cannot be exchanged against money (another stream of cash flow) for a price.Exchanging different streams of cash flow in terms of interest paid/received or timing of payment/collection is a common practice.

2. Transactions and activities that involve an element of uncertainty (speculation) regarding outcome and/or timing of execution or delivery are not allowed.Uncertainty and risk management are part and parcel of conventional banking activities

1. Penalties on late payments are prohibited. If penalties are levied, they must be re-channelled to charities.

2. Fees are typically charged for late payments.

1. Transactions and activities that involve engagement with unlawful business sectors, such as gambling and alcohol, are not allowed.

2. Besides money laundering and the financing of criminal activities, how customers use borrowed funds is typically unrestricted.

Source: Al Meezan Guide to Islamic Finance, Morgan Stanley Research.


Challenges to Development

Standardization is one of many challenges to future development. Morgan Stanley has identified four other areas of concern. First, the scarcity of Shariah scholars who are well versed in both Islam and finance leads to overburdened Shariah boards and slow approval processes. Second, Shariah compliance leads to greater product complexity, higher skills requirements, and more onerous documentation. Third, because of the unique aspects of Islamic finance and lack of hedging instruments, liquidity makes risk management that much more challenging. Finally, says Morgan Stanley, there is competition from conventional banking. Industry leaders are unfazed. “At the moment, Islamic finance only accounts for 1 percent of the global financial market,” says DIFC’s Thani. “We have done a lot of growing up in the past few years, and we’re conscious of the weaknesses in the system. We’re always addressing those. It’s difficult to set a time for the development of a level playing field [with conventional banking], but I think it will be relatively fast.”


Maha Khan Phillips is a financial journalist based in London.