MARKETS, PRODUCTS AND OPPORTUNITIES THE MALAYSIAN EXPERIENCE Islamic Finance Services Conference Singapore, 1 October 2013 Nik Mohamed Din Nik Musa MIFC Promotions Unit Bank Negara Malaysia Malaysia’s Islamic finance marketplace. Expertise. Innovation. Deal Flow.
PART I MALAYSIA’S APPROACH IN DEVELOPING ISLAMIC FINANCIAL SYSTEM Malaysia’s Islamic finance marketplace. Expertise. Innovation. Deal Flow. 2
ESTABLISHING ISLAMIC FINANCIAL SYSTEM – DUAL OR EMBEDDED WITHIN ONE SYSTEM Malaysia • Co-exists side-by-side Kuwait • Intentions to build a comprehensive Dual financial dedicated infrastructure Qatar system • Requires dedicated laws/regulations & Bahrain National Shariah regulatory body UAE Iran • Exists within same system • No dedicated laws/regulations Embedded Saudi Arabia • Does not require dedicated within the same infrastructure UK system • Offered as a product/service in the same common sphere Turkey 3 Malaysia’s Islamic finance marketplace. Expertise. Innovation. Deal Flow.
PROGRESSIVE ADVANCEMENT OVER THE YEARS IN DEVELOPING ISLAMIC FINANCE MARKETPLACE Holistic 1 Internationalisation of approach to Islamic finance - increase Instituting foundation build a diversity of players & of Islamic finance - complete instruments, enhance developing legal, ecosystem dynamics of the financial regulatory & Shariah framework markets, enhance financial linkages with other jurisdictions Malaysia’s experience Building 3 regional & Ensuring 2 international effective connectivity functioning of Creating market International integration - IF vibrancy - increase market liberalisation, marketplace number of players, upgrading develop financial infrastructures, markets & harmonise strengthen overall Shariah interpretation Islamic finance landscape 4 Malaysia’s Islamic finance marketplace. 4 Expertise. Innovation. Deal Flow.
HOLISTIC APPROACH TO BUILD A COMPLETE ECO-SYSTEM ADOPTING A PRAGMATIC & GRADUAL APPROACH Regulatory • Islamic Banking Act • Banking and • Central Bank of Tax neutrality Islamic Financial Framework 1983 Financial Institutions Malaysia Act 2009 policy Services Act 2013 • Takaful Act 1984 Act amended to • Capital Market • Government cater for dual Services Act 2007 Funding Act 1983 banking system Institutional • 1 st Islamic bank • Islamic windows • Foreign Islamic banks • Islamic Fund BNP-INCEIF Islamic Establishment • 1 st takaful company • 2 nd Islamic bank • Islamic subsidiaries Management Wealth Management • 2 nd takaful company • New takaful & retakaful Companies Centre • Islamic money licences market • Islamic Fund • Shariah Advisory Management Council Companies • IBFIM, SIDC, INCEIF & ISRA Initiative Malay aysi sia Internat ernational onal Islamic amic Financ nancial al Cent ntre Roadmap • 10-year Financial • Financial Sector Sector Blueprint - Masterplan internationalisation of • 10-year Capital Islamic finance Market • Capital Market Masterplan Masterplan 2 1980s 1990s 2000s 2010 2011 beyond Milestones Instituting Creating market International Internationalisation of Islamic finance - foundation of vibrancy - increase integration - market Increase diversity of players & Islamic finance – number of players, liberalisation, instruments, enhance dynamics of the developing legal, develop financial upgrading financial markets, enhance financial regulatory & Shariah markets & infrastructures, linkages with other jurisdictions framework harmonise Shariah strengthen overall interpretation Islamic finance landscape 5 Malaysia’s Islamic finance marketplace. 5 Expertise. Innovation. Deal Flow.
“Malaysia’s Islamic finance PART I marketplace is open to the world.” Tan Sri Dr. Zeti Akhtar Aziz Governor, Bank Negara Malaysia Malaysia’s Islamic finance marketplace. Expertise. Innovation. Deal Flow.
PART I PROGRESSIVE GROWTH IN ALL SECTORS Malaysia’s Islamic finance marketplace. Expertise. Innovation. Deal Flow. 7
STRONG PROGRESS IN BANKING, TAKAFUL & CAPITAL MARKET Exceed FSMP’s target of 20% Market share: 24.1% Assets (RM527.2 b/USD166.84b). Expansion in funding sources Market share: 25.4% Deposits (RM400.6b/USD126.77b) Robust financing activities supporting the economy Islamic Banking Financing Market share: 26.3% (RM335.87b/USD106.27b) Takaful Consistently register double digit growth Market share: Contribution 15.9%, Asset 10.1% Sukuk as preferred mode for Islamic Capital Sukuk fund raising Market 66% of total outstanding private debt securities @ 30 June 2013 Shariah equities make up 63% of Equity total market capitalisation Source: BNM Statistics, Malaysian ICM 8 Malaysia’s Islamic finance marketplace. Expertise. Innovation. Deal Flow.
ENCOURAGING GROWTH OF ISLAMIC BANKING & TAKAFUL Total Assets - Islamic vs Conventional Banking RM’ billion 2,500 CAGR Islamic Banking: 21.14% (2001 – 2012) Conventional 2,000 Islamic 1,500 1,000 500 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Q1 2013 Q2 2013 Market Penetration Rate (%) Asset Share (%): Takaful assets/Total Industry assets (Takaful + Insurance) Industry 2010 2011 2012 Q2 2013 2008 2009 2010 2011 2012 Q2 2013 Takaful 11.1 12.8 13.1 12.6 8.1 8.3 8.7 9.5 9.8 10.1 Insurance 42.9 42.7 40.3 41.1 Note: Market penetration rate = number of policies or Source: Bank Negara Malaysia certificates in force / total population Malaysia’s Islamic finance marketplace. Expertise. Innovation. Deal Flow.
A KEY MARKETPLACE FOR SUKUK ISSUANCES Global sukuk issuance 1H2013 (USD61.2 b) 140 100% 90% 120 80% 100 70% USD billion 60% 80 50% 60 40% 30% 40 20% 20 10% - 0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1H13 Global Issuance 2.50 5.75 6.64 11.50 25.52 46.02 20.63 28.02 45.15 85.07 131.18 61.18 Malaysia Issuance 2.28 4.10 4.37 8.21 13.50 25.68 6.47 20.41 32.83 60.92 97.08 41.45 Malaysia Market Share 91.0% 71.4% 65.9% 71.4% 52.9% 55.8% 31.4% 72.8% 72.7% 71.6% 74.0% 67.8% Global sukuk outstanding 1H2013 (USD245.3b) 300,000 100% 90% 250,000 80% USD million 70% 200,000 60% 150,000 50% 40% 100,000 30% 20% 50,000 10% 0 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1H13 Global Outstanding 1,273. 1,456. 3,882. 9,628. 16,213 27,583 51,585 94,720 104,80 123,16 142,31 177,84 229,30 245,28 Malaysia Outstanding 1,243. 1,323. 3,554. 7,654. 11,979 20,187 33,355 57,323 61,970 75,236 89,567 106,97 143,91 148,17 Malaysia Market Share 97.6% 90.9% 91.5% 79.5% 73.9% 73.2% 64.7% 60.5% 59.1% 61.1% 62.9% 60.1% 62.8% 60.4% 10 Malaysia’s Islamic finance marketplace. Source: Bloomberg, KFH Research 10 Expertise. Innovation. Deal Flow.
MALAYSIA ADVANCES AS A MULTICURRENCY SUKUK ISSUANCE MARKETPLACE Petronas USD1.5b (2009) Nomura USD100m (2010) Gov M’sia USD1.25b, US2b (’10, ‘11) Khaz SG1.5b, CNY0.5b, US358m (’10 - ‘12) Islamic Development Bank (IDB) USD500m, 800m, 1 b (2010, ‘12 ,‘13) Axiata RMB1.0b (2012) Sime Darby USD800m (2013) 11 Malaysia’s Islamic finance marketplace. Expertise. Innovation. Deal Flow.
DEEP LIQUID MARKET CREATES OPPORTUNITY IN SUKUK MARKET Wider investor base for sukuk vs bond, creating higher demand, thus better pricing for issuers Transparent and well established price discovery mechanism, creating a deep and vibrant secondary market trading Malaysia’s Sukuk Market has world-class infrastructure for data and valuation which meets global standards for Financial Reporting and Risk Management Comparison between similar Sukuk and Conventional Bonds shows savings for issuers: 3-yr bond yield matrix 3-yr sukuk yield matrix Q2 Q3 Q4 Q1 Q2 Q2 Q3 Q4 Q1 Q2 12 12 13 13 12 12 12 13 13 12 3.06 3.16 3.02 3.01 3.27 GII 3.18 3.23 3.23 3.20 3.37 MGS 3.69 3.72 3.73 3.70 3.76 AAA 3.65 3.68 3.69 3.66 3.72 AAA 3.84 3.84 3.84 3.81 3.82 3.88 3.88 3.88 3.85 3.86 AA AA 6.05 5.92 5.84 5.77 5.37 A 6.09 5.96 5.88 5.81 5.41 A IRS 3.11 3.19 3.27 3.31 3.36 IRS 3.11 3.19 3.27 3.31 3.36 12 Malaysia’s Islamic finance marketplace. 12 Expertise. Innovation. Deal Flow.
EFFECTIVE FUNCTIONING OF ISLAMIC FINANCE MARKETPLACE Breadth & depth of Islamic finance transactions in Malaysia e.g. Sukuk Public or private sectors Local & foreign issuers i.e. GLCs, MNCs, MDBs Listing option Players’ expertise in arranging sukuk on Bursa Listing Malaysia for profiling Issuance size ranges from RM100 mil to RM30 bil Efficient price discovery Maturity profile ranges Average monthly from 3 months to 27 volume in Regulation years secondary and tax market: neutrality & Documentations & rating USD42.21 billion incentives International documentation & Various Shariah contracts rating allowed e.g. Ijarah, Istisna, Murabahah & Musharakah Sukuk issuances in Expanded to form different currencies of innovative & hybrid denominations (MYR, Clearing House structures including USD, RMB, SGD) exchangeable sukuk Settlement via MyClear in MYR, MTN programme or one- 13 USD, RMB, SGD time issuance
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