Business

Singapore’s Islamic finance industry hit by setback

Singapore’s Islamic finance industry hit by setback

September 22, 2015 | 10:01 PM

Commuters walk past Masjid Sultan Mosque in Singapore (file). The apparent failure of IB Asia has been partly attributed to Singapore’s lacklustre regulatory framework for Islamic finance and the absence of a larger local client base.By Arno MaierbruggerGulf Times Correspondent BangkokNews that Islamic Bank of Asia, one of the major Shariah-compliant banks in Southeast Asia and a subsidiary of Singapore’s banking major DBS, will be closing down left the Islamic finance community in the city state baffled.Shortened as IB Asia, the institution was founded just eight years ago by DBS to tap the Islamic finance potential in Southeast Asia and beyond – with $500mn of paid-up capital shared between DBS and prominent Gulf investors – and to provide a full scope of Islamic financial services, including commercial banking, corporate finance, capital market and private banking services. Abdulla Hasan Saif, advisor for economic affairs to the Prime Minister of Bahrain, has been appointed chairman of the bank’s eight-member board of directors. The bank also aimed at “bridging Asia and the Middle East” where DBS has been active in big initial public offerings and securitisations over the past years and was among the first few Asian banks to receive a banking licence from the Dubai International Financial Center. In the Gulf, DBS, for example, arranged a $1.25bn-sukuk for Ooredoo in 2013.However, to the surprise of the Islamic finance community, DBS announced in a statement to the Singapore stock exchange on September 14 that IB Asia “will be gradually wound down as it was unable to achieve economies of scale.” The wind-down of the bank, which has been named “Best Islamic Bank in Singapore” by Islamic Finance News just in January this year and bagged the prize for “Global Finance Best Islamic Financial Institutions 2015 - Most Innovative New Structure” in April, will likely take “two to three years,” DBS said, adding that the operations will be integrated into DBS’s main operations and specialised staff will be “absorbed.” However, DBS said it will continue to offer Shariah-compliant products in Singapore and arrange sukuk sales.The apparent failure of IB Asia has been partly attributed to Singapore’s lacklustre regulatory framework for Islamic finance and the absence of a larger local client base. While the city state indeed tried to compete with Hong Kong in positioning itself as a regional Shariah finance hub, industry observer bemoaned the absence of incentives and lack of promotion for Islamic finance, as well as too few Islamic corporations, pension funds or bonds that would make use of a Shariah-compliant investment vehicle.Back in June this year, the Monetary Authority of Singapore (MAS) still spoke “of the rise of Islamic finance” in the country’s financial industry that saw 31 sukuk issuances over the past five years.“Singapore’s strength in conventional financing and capital markets can be adapted to meet the needs of Islamic banking,” MAS deputy managing director Jacqueline Loh back then at a banking conference.But this strength in conventional banking, or the absence of sufficient demand for Islamic finance which is mainly absorbed by neighbouring Malaysia, is probably the root cause, together with a lack of banking personnel skilled in Islamic finance, as well as fiscal incentives for sukuk like in Malaysia. Not even the fact that Singapore is rated top investment grade of AAA by Standard & Poor’s, six levels above Malaysia, is luring enough Islamic investors to the city state. Although Singapore was the first non-Muslim majority country to issue a sovereign sukuk in 2009, and issued a couple of others in the following years, this dynamic slowed down essentially. Last year, just one corporate sukuk was issued in Singapore by an Islamic real estate investment trust, Singapore’s one and only. “There are sukuk programmes established by Singapore corporates that have not been fully tapped yet,” Loh said, adding that “we will continue to create opportunities for interaction and collaboration.”

September 22, 2015 | 10:01 PM