Malaysia sharia bank plans funds, sees demand

Reuters - Malaysian Islamic lender Asian Finance Bank will set up aviation and property funds with over 1.5 billion ringgit ($420 million), aiming to capitalise on demand for alternative assets amid the global financial crisis.

As financial markets skid under growing fears of a global recession, some Islamic banks are ploughing on with expansion and fund-raising plans, reflecting a belief that the industry is relatively resilient to the meltdown.

Asian Finance, which is backed by Middle Eastern shareholders, is planning a Gulf aviation fund which could be denominated in the euro or dirham currency, Asian Finance chief executive Mohamed Azahari Kamil said in an interview.It was too early to state the fund's size although it would probably be above 1 billion ringgit, he said, adding that the bank is working on the fund with some Gulf airport operators.

"Aviation has always been the growth sector, particularly in the GCC (Gulf Cooperation Council) because we believe there is a lot of potential in terms of transportation business," Azahari said."Because of the scarcity of liquidity, we need also to look at the possibility of doing a fund which is maybe non-US dollar denominated."Asian sharia banks are aggressively wooing Middle East investors who want their money to be invested according to Islamic principles.

Asian Finance had said on Thursday it would distribute a 1 billion ringgit Islamic fund aimed at allowing Gulf investors to invest in companies in the ASEAN region.
This follows a plan by the Singapore unit of Kuwait Finance House, Kuwait's largest lender by market value, to raise $600 million in Islamic funds next year to buy ships, stakes in private firms and properties in Asia.Azahari said Asian Finance is also working with two companies to create a 500 million ringgit fund to develop properties around Kuala Lumpur.The ringgit-denominated fund is expected to be launched in the first half of 2009, he said.

COMING STORM?

Azahari said he expected demand for Islamic products to hold up as the global financial crisis drives investors into the safe haven of Islamic banking.
"In this very difficult financial meltdown, the conventional system has shown to the public that it has failed," Azahari said."It has failed not only because of corporate governance or transparency but it has failed because of the structure where there is no equitable distribution of wealth between the bank and the customers."

The $1 trillion Islamic finance industry is widely seen as the banking world's conservative alternative, as it forbids speculative activity and excessive risk and demands that partners share the profits and losses of a venture.
But some industry experts have warned that Islamic banks would not escape the fallout hurting conventional markets because property and commodity prices are falling as global economic activity slows down.

Property and commodity underpin many Islamic deals due to the sharia's demand for all transactions to involve a specific asset to avoid purely speculative activity.
Several Islamic bond cancellations and poor earnings by some big Gulf banks have highlighted that the industry is not immune to the troubles in financial markets.
But Azahari was upbeat about prospects for the industry.

"We believe we are quite insulated because our strategy in Islamic banking has always been on the partnership concept, on the win-win situation for both the bank and its partners," he said."Islamic funding has always been about medium to long term so generally this is a cycle which everybody has to go through."

Qatar Islamic Bank and its associates have a 70 percent share in Asian Finance. RUSD Investment Bank Inc of Saudi Arabia has 20 percent and Global Investment House of Kuwait has 10 percent.