Standard Chartered and Bank Islam Malaysia plans to provide Shariah-compliant products in Malaysia

Standard Chartered Plc and Bank Islam Malaysia Bhd plans to provide Shariah-compliant products in Malaysia, which allow investors to hedge against interest rates and commodity prices.

Standard Chartered, the British bank that earns most of its profits from emerging markets, will start selling contracts in the first quarter that provide protection against fluctuations in the cost of items such as rice and oil, as a response e-mail to questions yesterday. Bank Islam Malaysia, the country's oldest Islamic lender, will offer exchanges that allow both parties to exchange various forms of payments from an underlying asset.

The lack of such products sharia is hampering the growth of the sector, Badlisyah Abdul Ghani, chief executive of Kuala Lumpur-based CIMB Islamic Bank Bhd, said in an interview on 20 December. The market will be limited to hedging derivatives later contributed to the global financial crisis, which led to 1.8 trillion U.S. dollars in credit losses and writedowns.

"The industry has undergone a series of innovations in the last 10 years to provide Shariah-compliant solutions and industry today can be said to have derived from Islam," Syed Alwi Mohd Sultan, director of Standard Chartered Saadiq origination Bhd The bank Kuala Lumpur-based Islamic banking unit, said in a telephone interview on 15 December. "The wide acceptance of standards will bring about greater convergence in the industry."

Derivatives are contracts whose value is tied to assets such as stocks, bonds, commodities and currencies, or events such as changes in interest rates or the weather.

Approvals

Standard Chartered began offering commodity contracts based in the Persian Gulf in March as the International Islamic Financial Market, Manama agency, based in Bahrain which provides the guidelines, provided the legal documentation of standardized derivatives Sharia in the same month. The UK bank will be the first to offer products in Malaysia and is awaiting regulatory approval, according to the e-mail.

Islamic contracts can not be marketed or used as a speculative investment under Islamic law, said Aznan Hasan, Assistant Professor at the Kuala Lumpur-based International Islamic University Malaysia, in an interview on 20 December. Standard Chartered products are reviewed by a panel of experts on sharia to ensure compliance and are backed by an underlying real, Syed Alwi said.

"Customers need to hedge, if you have a customer who has to make payment in the future for the company bought properties abroad, they have to cover their currency," said Aznan, who sits on many advisory boards as the central bank of Malaysia.

Asia-Pacific Market

Asia-Pacific surpassed North America as the largest derivatives market in the six months to June and 38 percent of the global total, according to the Washington-based Futures Industry Association published in September. That compares with 33 percent North American market.

CIMB Islamic Sukuk arranger of the world top of this year, is to "explore" credit default swaps, which comply with Islamic Shariah to complement the bank's swaps profit rate, currency swaps and currency swaps between the rate of profit Badlisyah said.

"It is too early for the market, but have been subject to an interest in our products from institutional investors and companies need to cover their positions," said Badlisyah. "Without an effective risk management, Islamic financial institutions can not grow in a stable and aggressive."

Sukuk Returns

Malaysia, the center of Asia to finance Shariah-compliant, representing over 50 percent of the 144 billion U.S. dollars of Islamic bonds, or sukuk, worldwide. Total sales of securities, which pay yields of assets to comply with the ban on religion in the interest, have dropped 24 percent to 15.3 billion U.S. dollars this year.

Shariah-compliant bonds returned 12.4 percent in 2010, according to HSBC / NASDAQ U.S. Dollar Dubai sukuk index. The debt in developing markets gained 11.7 percent, JPMorgan Chase & Co. 's EMBI Global Diversified index shows.

The difference between the average yield of sukuk and interbank offered rate in London fell two basis points, or 0.02 percentage points to 305 on December 21, according to the HSBC / NASDAQ U.S. Dollar Dubai sukuk index. The spread has fallen 163 basis points this year.

The increased demand

The performance of Malaysian notes of 3,928 percent since June 2015 Islamic rose two basis points to 3.10 percent today, according to the price of Royal Bank of Scotland Group Plc. The debt has returned 5.8 percent since it was published in June.

The performance difference between the Dubai Department of Finance of sukuk percent of 6396 due in November 2014 Malaysian Islamic note was little changed at 339 basis points today. The gap narrowed 59 basis points this month.

The demand for services that comply with Islamic law is increasing by 15 percent per year and assets will rise to $ 1.6 trillion by 2012, from $ 1 billion today, according to the Kuala Lumpur-based Islamic Financial Services Board.

Bank Islam Malaysia plans to introduce new contracts for an exchange rate gain or back and forth between two counterparties, Hizamuddin Jamalluddin, the bank's assistant general manager, said at a seminar for Islamic derivatives on 14 December in Kuala Lumpur. These are in addition to its current hedging contracts that comply with Shariah, said.

borrowing costs hit a record low in U.S. could increase in 2011, providing a "timely" opportunity for banks to issue derivative swaps based Hizamuddin said.

"It's very important that sukuk holders have access to coverage solutions that enable them to face the challenges in an environment of rising interest rates," he said. "Interest rates seem to have bottomed."