Islamic Financial Institutions Awards 2009
Neville, Laurence, Global Finance
Global Finance selects the winners in a fast-growing area of finance that combines investing according to the tenets of Islamic law with modern financial products and systems.
For a brief moment it seemed that the world of Islamic finance - the central tenet of which is the non-payment of interest - might avoid the meltdown that occurred in global finance from September 2008. Some observers believed the emphasis placed by Islamic banks on deposits as the source of funds for lending would distance them from the instability that plagued conventional banks reliant on wholesale markets.
However, that hope proved forlorn. The Middle East came under pressure as the oil price plummeted, while Dubai suffered from the global property slump. Similarly, growth in Malaysia - a leading sukuk, or Islamic bond, market - reversed sharply in the last quarter of 2008. One reflection of the challenges facing Islamic banking is the fall in sukuk issuance from a record $31 billion in 2007 to just $13.9 billion in 2008.
However, despite this sharp fall in volumes, market participants believe that the sukuk market has an unstoppable long-term momentum and that deal flow could even surpass 2008 levels this year. According to Saudi Arabia-based NCB Capital, as much as $39.3 billion could be raised this year, $24.6 billion of which is expected to come from the Gulf Cooperation Council (GCC) region.
Meanwhile, in Southeast Asia, the leading bank in the region, CIMB Islamic, expects to arrange deals totaling $2.5 billion this year. Moreover, the appeal of sukuk remains undimmed. In mid-April the Indonesian government completed its first international sukuk for $650 million and generated $4.6 billion of demand - testament to the enormous potential of the market.
At the same time, the broader Islamic finance market is in excellent health. A recent report by HSBC estimated that the global Islamic banking market was worth as much as $750 billion a year and said that the market was continuing to grow at more than 15% a year. Outside the Middle Eastern core market, there are hopes that France will soon join the United Kingdom in authorizing Islamic financial institutions.
To be sure, the Islamic finance industry has significant issues to overcome. Standardization of regulatory regimes, product types and accounting structures is essential if a truly global - and liquid - Islamic finance market is to be established. Nevertheless, the industry has achieved a great deal since the first sukuk in 1990 and the creation of mainstream Islamic banking in the mid-1970s.
The second annual Global Finance Islamic finance awards honor the leading institutions in the regions, countries and product areas in which Islamic banking has an established or growing presence.
The awards are based on extensive consultations with bankers, analysts and industry experts but ultimately are the decision of Global Finance's editors. The criteria include a range of factors, including growth in assets, profitability, geographic reach, strategic relationships, new business development, innovation in products and the banks' ability to conduct and fund themselves in the current environment.
BEST SUKUK BANK
Dubai Islamic Bank
Ranked first for international sukuk issuance for 2008 by Bloomberg, DIB has been at the forefront of many of the landmark deals in the sector since its inception. During the past year, the bank's standout deal was a 1.1 billion dirham issue for real estate finance group Tamweel in July 2008, which introduced a number of innovations. In order to make better use of Tamweel's properties under construction and completed properties for fundraising purposes, an investment structure was created based on a combination of istitna and ijara Islamic financing principles. One-third of the sukuk proceeds were used to purchase Tamweel's rights, tide and interest on the completed assets (ijara assets) while the remainder of the sukuk proceeds were used to purchase Tamweel's rights, tide and interest in the construction assets. …