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Kuala Lumpur: Standard Chartered Plc will start Islamic private banking
services in Asia and CIMB Group Holdings Bhd. plans to roll out
new products for the wealthy as they target rich Muslims who have
limited investment options in the region.
The UK’s second-largest lender by
market value will offer Shariah-compliant products tailored to
meet the needs of people who have at least $2 million (Dh7.35
million), Wasim Saifi, the Kuala Lumpur-based global head for
Islamic consumer banking, said.
Malaysia’s CIMB will market more
instruments in the fourth quarter for clients with a minimum of 1
million ringgit (Dh1.15 million), Badlisyah Abdul Gani, chief
executive officer of CIMB Islamic Bank Bhd., said.
CIMB says
Islamic private banking has been slow to take off due to the
challenge of creating enough investments that comply with Shariah
law, while Standard Chartered estimates that seven out of eight
Muslims globally bank according to non-Islamic principles.
The number of individuals in Asia Pacific with at least $1 million
in investable assets reached 3.4 million last year, topping the
number in North America, according to a report released in June by
Capgemini SA and RBC Wealth Management.
“There are huge prospects
for Islamic private banking,” Abas A. Jalil, CEO of Kuala
Lumpur-based consultancy Amanah Capital Group Ltd., said in a July
9 interview.
“There are many investors in Asia
whose businesses have been doing well in the Middle East, Europe
and America and they are looking at investing", he added.
Falling yields on Islamic bonds are cutting options for banks
looking to boost returns for their wealthy Muslim clients. Global
yields dropped six basis points this month to 3.38 per cent, the
lowest level since January 2005, according to the HSBC/Nasdaq
Dubai US Dollar Sukuk Index. The securities offered average rates
as high as 4.49 per cent in 2010 and 6 per cent in 2007.
Standard
Chartered plans to introduce Shariah-compliant structured products
among its private-banking options, according to Saifi. Such
investments are classed as higher-risk, often involve hedging, and
are typically tied to movements of underlying assets, including
equities. The lender, which earns most of its profit in Asia, will
also offer mutual funds, he said. Private banking ranges from
property investments to retirement planning.
“The wealthier the customer is, his requirements tend to be far
more sophisticated when it comes to risk-management,
diversification and yield-enhancement,” Saifi said.
“Today, you
can’t really say that an Islamic high net-worth individual would
have the same options on the Shariah side as he would have on the
conventional side", he said.
Interest in financial products for wealthy
Muslims will rise as economic growth in Asian nations outpaces the
rest of the world, driving up incomes, according to CIMB.
The
International Monetary Fund (IMF) estimates economies in
developing Asian countries will expand 7.3 per cent this year and
7.9 per cent in 2013, according to its World Economic Outlook
Update issued in April. That compares with 2.1 per cent and 2.4
per cent in the US, respectively. The Middle East and North
African regions will grow 4.2 per cent and 3.7 per cent, the
Washington-based lender said.
Standard Chartered has started offering Islamic private-banking
products in Malaysia, Indonesia, Brunei, India and Pakistan
through its offices in Singapore and Hong Kong, Saifi said. The
bank announced on June 25 that Shariah-compliant wealth-management
services would also begin in Dubai, London, Geneva and Jersey,
according to a statement.
The number of millionaires in the Middle
East rose 2.7 per cent to 450,000 last year, according to Capgemini’s report, which didn’t give a breakdown for the
Asia-Pacific region. “There is increasing demand for Islamic
private banking,” CIMB’s Badlisyah said. “This area is a low-lying
fruit as
Islamic finance assets total $1.3 trillion globally and are
growing at an average annual rate of 15 per cent, according to a
June 27 statement from Malaysia’s Securities Commission.
The
Southeast Asian nation is the world’s biggest market for Shariah-compliant
bonds. Global sukuk are yielding 184 basis points, or 1.84
percentage points, less than the 5.22 per cent average on debt in
emerging markets as increased supply fails to match demand.
I
slamic notes returned 5.5 per cent this year, according to HSBC
indexes, compared with 9.3 per cent for securities in developing
markets, JPMorgan Chase & Co.’s EMBI Global index shows. Worldwide
sales of Islamic bonds, which pay returns on assets to comply with
Islam’s ban on interest, climbed 65 per cent to $25.5 billion in
2012 from a year earlier, according to data compiled by Bloomberg.
Issuance reached a record $36.7 billion in 2011.
The difference
between average global sukuk yields and the London interbank
offered rate, or Libor, widened five basis points this month to
245 basis points, according to HSBC. That compares with 273 basis
points at the end of last year.
Shariah-compliant private banking needs more time to establish
records of historical performance and a wider range of products in
order to grow, according to the Dubai-based law firm King &
Spalding. The industry may then attract non-Muslims, Jawad Ali,
deputy global head of the Islamic finance practice at King &
Spalding, said in a July 9 interview.
“If the private banker has a
good menu of Shariah-compliant products to offer, then the
industry will grow,” Ali said.
“The only way for Islamic private
banking to entice conventional investors is to create a track
record of producing better returns over a period of time", he
added.
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