Malaysia

Asian Finance Bank likely target as Islamic mega lender, say sources

KUALA LUMPUR, June 26 — The controversial plan by regulator Bank Negara Malaysia (BNM) to set up an Islamic mega bank using public funds could involve the purchase of an existing lender, Asian Finance Bank (AFB), say industry sources. The AFB is one of three foreign Islamic banks in Malaysia.

But perhaps likely to be more troubling than the use of public funds is a move to offer Islamic banking expert Professor Datuk Dr Rifaat Ahmed Abdel Karim and other “promoters” of the idea up to nine per cent of the shares in the super bank, which is to be capitalised at US$1 billion (RM3.2 billion).

“BNM is looking at taking over AFB and turn it into an Islamic mega bank,” a banking industry source told The Malaysian Insider.

It is said that Zeti came up with the idea to buy up AFB and turn it into an Islamic mega bank. — File picIt is said that Zeti came up with the idea to buy up AFB and turn it into an Islamic mega bank. — File picAFB was incorporated in November 2005 and is backed by a consortium of shareholders — Qatar Islamic Bank (66.67 per cent), RUSD Investment Bank Inc (16.67 per cent), Tadhamon International Islamic Bank (10 per cent ) and Financial Assets Bahrain W.L.L (6.67 per cent). It offers syariah-compliant products in consumer, corporate, commercial, treasury, investment banking and asset management services with two branches, one here and the other in Johor Baru. It also has a representative office in Jakarta.

The Malaysian Insider had previously reported that national oil firm Petronas and state pension fund Kumpulan Wang Amanah Pencen (KWAP) had been approached to make a US$100 million investment each into the venture but both declined.

BNM Governor Tan Sri Dr Zeti Akhtar Aziz had reportedly made the personal pitch and despite the rejection, the central banker returned with the plan to buy up AFB. It is understood that KWAP agreed to fund a due diligence on the takeover of AFB to the tune of US$1 billion.

The central bank has declined comment on the matter, saying it was policy not to comment on speculation. However, Second Finance Minister Datuk Seri Husni Hanadzlah said on Sunday that a licence has been issued for the super bank but he did not name the licensee.

Bankers familiar with the proposal are puzzled as to why BNM, as a banking regulator, is in the business of setting up banks. “This is very unusual and not the business of a regulator,” one of them told The Malaysian Insider on condition of anonymity.

The bankers also noted that the likes of KWAP and other funds can already invest in existing Islamic financial institutions such as Bank Islam Malaysia and Bank Muamalat Malaysia, rather than get into a new super bank.

Putrajaya has also been caught out by this initiative because the Islamic mega bank was mooted to give a new banking licence to a foreign entity or foreign entities, not to tap local funds. BNM had previously said it was looking to foreigners setting up two Islamic mega banks out of Malaysia. Middle East financial centres have also expressed interest to set up such super banks but none have yet appeared.

It is also understood that Putrajaya mandarins also think that it is not palatable for free shares to be given to any individual or individuals especially when public funds are involved. Rifaat is the former secretary-general of the Islamic Financial Services Board (IFSB) and is now a visiting professor at the ICMA Centre, Henley Business School, University of Reading, the UK, and part of the governing council of International Centre for Education in Islamic Finance, Malaysia (INCEIF).

Pakatan Rakyat (PR) MPs are demanding BNM explain why it is proposing that Petronas and pension funds be used to set up the super bank, saying that foreign institutions should instead be used to underwrite part of the start-up capital.

“When BNM announced in 2010 that it would issue two licences to create two mega banks with a paid-up capital of at least US$1 billion, the market expectation was that it would be foreign institutions, given the sheer size of the exercise.

“Why should we ask Petronas and KWAP for funds to create a mega Islamic bank? After all, we have been given the impression that there has been a lot of interest, especially foreign, in the mega Islamic bank,” Lembah Pantai MP Nurul Izzah Anwar told The Malaysian Insider yesterday.

Bankers say the bid to create a well-capitalised Islamic bank, which dates back to at least 2006, has been fraught with difficulties such as the struggle to raise sufficient capital and disagreement as to where the lender should be located.

One of the project’s main backers is Saudi Arabia’s Sheikh Saleh Kamel, founder and chairman of Bahrain-based Islamic bank Al Baraka, according to a Reuters reports.

BNM has never disclosed the applicants for the licences but there was market speculation that the Islamic Development Bank and Al Baraka could be keen.

Earlier this year, Beirut-based Union of Arab Banks’ (UAB) magazine reported that a mega Islamic bank with a capital of US$1 billion and headquartered in Bahrain might be launched this year.

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