LONDON, 19 June 2006 — HSBC Amanah, the global Islamic financial services division of the HSBC Group, is consolidating its stranglehold on Islamic finance by a global banking major, at a time of market reports that at least one other major global banking player is scaling down its Islamic investment banking activities out of Bahrain.
“Islamic finance is one of the fastest areas of growth for the bank,” stresses Iqbal Khan, CEO of HSBC Amanah. “Saudi Arabia, UAE, Qatar, Malaysia, Bangladesh, Indonesia, Brunei, the UK, US and Turkey are the countries where we have a presence and our business is continuously expanding. We do not disclose our total Islamic finance figures as an entity because of client confidentiality reasons, especially on the private banking side. Our equity funds in Saudi Arabia are one the largest in the market. Our experience at HSBC Amanah has been nothing but success, for which we are very grateful.”
HSBC Amanah recently got licenses to set up Takaful (Islamic insurance) companies in Saudi Arabia and Malaysia, primarily though joint ventures with local partners. “Takaful is a very strategic focus and a global proposition for us. We want the focus of the Islamic finance industry to shift from just plain vanilla finance to a mode of financing to where people take on the role of investors and start protecting their future and their children’s future. For us Takaful is very important,” maintains Iqbal Khan.
In fact, in 2005 HSBC Amanah became the first and only provider of home Takaful in the UK to complement its Islamic mortgages. HSBC is also the sole supplier of Shariah-compliant pension plans in the UK. Not surprisingly, Khan is pleased that the Blair government is effecting legal changes through amendments to the Finance Act enabling Islamic financial products to be offered in the UK.
“There were some legal and regulatory challenges, but the authorities in the UK have been very accommodating. We had to overcome more challenges when we were developing our home financing program than for the Takaful product. We are grateful to Chancellor Gordon Brown for introducing all the changes. It was really a landmark. This has led other countries to do the same thing,” he explains.
In Singapore alone, HSBC has almost 30,000 Takaful policyholders. HSBC Insurance (Singapore) manages almost $500m of Takaful funds, and according to Khan, this business continues to grow fast.
HSBC Amanah recently also concluded a number of transactions with a total of $1.45 billion in the GCC region. These included a $850m 5-year revolving Murabaha facility for Kuwait Finance House, in which HSBC Amanah acted as Mandated Lead Arranger. HSBC Amanah also acted as Financial Adviser to Saudi Aramco and Sumitomo Chemical on the $600 million Islamic facility for the Rabigh Refinery and Petrochemical Project.
The Kuwait Finance House deal, according to the bank, was launched at $500m, oversubscribed to $942m and closed at $850m, of which more than three quarters was placed outside the Middle East. One of the reasons for the huge demand is that the deal was very competitively priced.
The $600m Saudi Aramco and Sumitomo Chemical facility for the Rabigh Refinery and Petrochemical Project is the largest such facility to date and is based upon the procurement of a number of core project assets and an Islamic lease of those assets to the project company.
On the Sukuk front, HSBC Amanah acted as Advisers to the Government of Brunei on the establishment of its Brunei Dollar Short Term Sukuk Al-Ijara Program. Brunei is the first sovereign in the world to develop its capital market in a Shariah compliant manner without first having established a conventional capital market.
HSBC’s Khan says that there is a huge momentum in the Islamic banking industry with many new players coming into the sector. “Over the last few months there have been six announcements of new Islamic financial institutions being created. These are large major players coming in. This means that these players will have to create there own value proposition, which I believe would lead to greater innovation and growth, and relevance for Islamic finance.” He predicts that Islamic financial institutions are going to have a couple of decades of huge but quality growth.
Iqbal Khan is cautious about the real estate and equities boom in the Gulf, which have recently seen some form of market correction. When any market goes through euphoria, whether real estate or stock markets, it takes people’s attention away from the real economy. In the GCC economies, he says, there is a huge amount of liquidity which has been chasing limited investment opportunities. The creation of new Islamic banks is testimony that investors want to diversify to create new institutions.
But he warns that in the future these institutions would have to “find their own relevance and game plan to justify their existence. Competition will make sure that the strong and well-managed are the ones which become stronger and get investor support.” One important future direction for Islamic finance, is that there has to be a basic shift in the industry from what he calls “Shariah-compliant products to Shariah-based products”. The industry in the last 30 years have just taken financial products and tinkered with them. But now, the industry has the human resources, the Shariah regulations and the various guidelines to move to the next level of development.
This, he says, is a fundamental shift of mindset, “which will have a huge impact on the future of this industry”.