“NCB has plans to introduce more globally-oriented Islamic investment products including one based on the FTSE in the UK, and products based structured for Asian markets.”
LONDON, 7 April 2003 — Saudi Arabia’s National Commercial Bank (NCB) seems to have embarked on an interesting new strategy aiming to make Islamic investment products available globally to the Muslim investor. There is only one banking license category in the Kingdom and no Islamic banking law codified.
Nizar Al-Shubaily, head of asset management at NCB, is pragmatic about the strategy. “Today,” he recently said, “we have 75 Islamic funds in Saudi Arabia. Every bank offers one but if you go to the UK, Germany or France, you practically have nothing Islamic to invest in. How can you make an industry global if the products are not available everywhere? Somebody has to take the lead and create products which are available to people everywhere. “We have every intention of making Islamic investment products available globally to the Muslim investor.”
Late last year, NCB teamed up with Deutsche Bank to launch a pioneering retail equity product called Islamic EquityBuilder Certificates denominated in US dollars, sterling and euros. The certificates have already attracted over $40 million in subscriptions, mainly from the Gulf. NCB has plans to introduce more globally-oriented products including one based on the FTSE in the UK, and products based structured for Asian markets. To add further value, NCB is also working on a Takaful (Islamic insurance) product linked to the bank’s Islamic equity funds. NCB has SR22 billion of mutual funds under management, of which a staggering SR16 billion are Shariah-compliant or Islamic mutual funds. In other words, of NCB’s 24 mutual funds, some 18 are Islamic.
In fact, the single largest Islamic fund in the world is NCB’s Al-Ahli Saudi Riyal Trade Fund with SR11 billion under management. NCB also boasts the largest Islamic global equity fund, Al-Ahli Global Trading Equity, with $350 million under management.
So involved is NCB in the Islamic finance sector that it has 70 dedicated Islamic banking branches in the Kingdom today, and in February did the first Islamic Saudi Riyal securitization — a SR460 million one - for Abdul Latif Jameel, which does the car financing for Toyotas and Lexus cars in the Kingdom. NCB in fact is planning to do a lot more securitizations with other Saudi and regional corporates, absorbing some of the excess liquidity in these markets. “The aim is also to take some of these securitizations and leveraging them into issues as opposed to only unit funds for the retail sector.” NCB could, for example, take a securitization deal and convert it into US dollars, get it rated, and could then place it with Middle East financial institutions — both Islamic and conventional, and insurance companies. In this way, NCB is not only launching the products, but also backing them and provide the liquidity.
NCB’s Islamic business, says Al-Shubaily, is demand or customer driven. This business is fully supported by the senior management of the bank. “I do not think we would have achieved what we have if there was very little commitment from senior management. SAMA (the Saudi Arabian Monetary Agency) is also very supportive of our Islamic products and services. They care more about the regulations from the point of view of protecting the customers, irrespective of whether you are selling Islamic or conventional products,” he added.
However, the bank, contrary to rumors and speculation in the media, has no plans to convert into a dedicated Islamic bank. “As of today there is no clear and specific strategy to convert the bank into a fully-fledged Islamic bank whether in the short-term or in the medium-term. NCB remains a conventional bank. What has happened is that we have been so successful in the Islamic banking sector because of our commitment to Islamic banking. Because of the large size of our Islamic funds under management, everybody has been assuming that NCB will become an Islamic bank next year. The reality is that we are there to offer customers what they want,” explained Al-Shubaily.
NCB is soon launching its Asset Allocation Service throughout its extensive branch network — a hands-on service aimed at discussing with clients their liquidity needs, risk parameters, their concerns and experience of the market, and then designing the appropriate investment portfolios for them. Especially during times of a downturn in global equities and in the global economy, people want more “hand-holding” and need to understand and formulate a comprehensive investment policy. The aim is also to play and educating and awareness creation role in respect of Islamic financial products.
The lesson of the current bear market, according to Al-Shubaily, is that those mega returns of 20 percent to 25 percent in the mid-1990s are a thing of the past, with more reasonable returns equalizing between 7 percent to 10 percent at best.