Wednesday, July 29, 2015

Brunei Pursues Greater Sukuk Liquidity

The Oxford Business Group reported the following news:

+++++

Brunei pursues greater sukuk liquidity

Brunei DarussalamFinancial Services
Economic News Update
29 Jul 2015

Further solidifying the importance of Islamic finance in Brunei Darussalam’s developing capital market, the country’s financial regulator said in June it is preparing to issue long-term sharia-compliant bonds in the near future.

The Sultanate has a strong track record of sukuk (Islamic bonds) issuance dating back to 2006; however, all 118 of the issues to date, which total BN$8.6bn ($6.3bn), have had maturities of one year or less and were sold exclusively to the country’s seven domestic commercial banks.

With the regulator announcing its intention to widen the list of eligible buyers for the upcoming issue, the prospects of a more liquid sukuk market, as well as the development of a secondary market, are attracting investor attention.
Deepening the market

According to the IMF’s most recent report, published in June, Brunei Darussalam has stepped up its commitment to market reforms in recent years, developing a credit information bureau and launching a national payments and settlement system.

This burgeoning financial architecture would be further improved by an Islamic bond market with longer maturities and greater liquidity, the fund noted. “Going forward, staff encourages the Autoriti Monetari Brunei Darussalam (AMBD) to undertake further measures to deepen the financial sector in tandem with an appropriate macroprudential toolkit.”

According to a statement from the AMBD, the new longer-term sukuk is set to be issued in the “very near future”. This comes alongside another announcement in May that the AMBD plans to launch a securities exchange in the next two years.

Its most recent ijara (leasing) issue came in May; the BN$100m ($73.1m) sukuk with a 0.69% rental rate and a 182-day tenor brought total holdings of outstanding government sukuk to BN$700m ($511.5m), according to local press reports.
A firm foothold

With the global Islamic finance market doubling in size since 2011 to an estimated worth of $2trn, Brunei’s plans also coincide with the growing contribution of Islamic financial services to the local economy.

According to the Global Islamic Finance Report, by 2020 Brunei will be one of just six countries where Islamic banking and finance account for more than half of the financial sector. Islamic banks already hold a 45% share of total banking deposits in the Sultanate, with forecasts suggesting this will rise to 50% in the next two to three years.

“When it comes to sukuk or debt capital markets, clearly there are opportunities. High-quality issuers from Brunei could look to raise money domestically and internationally,” Mansoor Shakil, director at Dubai-based private equity firm Fajr Capital, told local media in June.

The Sultanate is also exploring opportunities to extend its local expertise to the broader region. According to statements by Javed Ahmad, managing director of the country’s largest bank, Bank Islam Brunei Darussalam (BIBD), the bank plans to extend its Islamic finance activities to establish a regional footprint, with Malaysia and Indonesia cited as the most promising growth opportunities.
Creating competition

Despite the popularity of Islamic finance in the majority-Muslim country, industry observers highlight a lack of competition in the market, with some suggesting that the entry of new players would be beneficial. BIBD currently accounts for about three-quarters of Islamic banking by assets.

No comments:

Inspirational Quotes