Interpreting Middle East Economic News and Analyzing Market Trends

Category: Islamic Finance

Al-Azhar in power-grab with Brotherhood over Egypt’s proposed sukuk law

Egypt is the largest Arab and Muslim country in the Middle East, yet it never allowed for the establishment of Islamic banking rules and regulations.  Thank Mubarak for this.  One of the first item’s on newly elected President Muri’s agenda was the implementation of Islamic banking laws in Egypt.  It was especially critical to have these new laws in place in order for Egypt to tap the Islamic capital markets, which include the rapidly growing sukuk market (Islamic bond equivalent).

The country has been locked in a stalemate with the IMF over a proposed $4.8 billion loan, and it is currently locked out of international markets to finance in budget gap.  Being able to issue sukuk would alleviate some of this pressure since Egypt will have a better chance at finding investors in the region willing to invest in their sukuk.  Egypt’s upper house of parliament approved the new sukuk law only to come under fire by Al-Azhar University’s Senior Scholars Authority.  Al-Azhar is one of the oldest universities in the world dating back over 1,000 years, but has never been involved in state affairs until now.

 

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Islamic banking assets grow faster than conventional banking assets

Islamic banks, which also suffered during the financial crisis, are back on track and growing faster than their conventional counterparts.  Though still small by global standards, Islamic banking assets topped $1.55 trillion for the first time in 2012.  Here’s more from Arab News:

Islamic banking assets with commercial banks in the GCC* reached $445 billion at the end of 2012, up from $390 billion in 2011, with the outlook for the industry remaining relatively positive in 2013.  This represents a 14 percent year-on-year growth, which is considerably lower than the five-year average of 19 percent.

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Money-laundering and other poor decisions put breaks on HSBC’s revenue growth, 5,000 more jobs might be cut

The bank, once known as “the world’s local bank,” has spent the past few years trying to find its way through the financial crisis.  What has emerged since then is a bank riddled with scandals, poor decision-making and a management team out of focus.

 

Pre-Financial Crisis

 

Though HSBC’s problems became clear only during the financial crisis, some of the problems were present well before 2008.  Let’s start first with 2003.  This was the year HSBC acquired Household International in the US.  A well-known predatory lender, which had its run-ins with the law for its predatory practices.  HSBC, a global bank by all standards, was merely a New York bank in the US, with a few branches in Miami and Los Angeles.  The pressure was on senior management to make a significant acquisition in the US to enhance its footprint in the market.

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UK triple-A downgrade brings sukuk issuance back in focus

Last month’s downgrade of the UK’s prized tripple-A rating by Moody’s may have had other ramifications.  According to Norton Rose, the downgrade may have brought back the plan to issue sukuk.

 

Five years ago, the UK’s Treasury made headlines as it announced plans to be the first western government to issue sukuk.  The plan had two objectives; first, to diversify the government’s funding base by attracting a new breed of investors, and second, to solidify the UK’s role as the center for Islamic finance.

 

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Junk bond issuance hits new record, time for sukuk issuers to stay clear of this bubble

Junk bond issuance hit a record in 2012 and is on track to hit another record in 2013.  Much like the sukuk market, junk bonds have been the hot product on Wall Street ever since the Fed and ECB pushed interest rates near zero and promised to keep them there for years to come.  Investors searching for higher yields had to look outside of these markets for better returns.  This ushered in the new era for the junk bond market.  Here’s a recent article on the junk bond market:

Wall Street banks are selling junk bonds at a record pace — raising concerns they are selling debt that may be poised to lose value.

 The banks spent more than $93 billion dealing with costs from the 2008 credit crisis, including lawsuits and fines for allegedly misleading investors about mortgage-backed products.

This time is different, bankers say.

  

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