WIDER ACCEPTANCE: Borrowing costs fallen 12 percentage points since world credit crunch
ISLAMIC loans slumped this year to the lowest since at least 2006 as banks encourage borrowers to tap the sukuk market, where borrowing costs have dropped almost 12 percentage points since the world credit crunch.
Syariah-compliant lending in the Middle East, Europe and Africa declined 95 per cent to US$287 million (RM869.6 million) in 2013 from a year earlier, while sales of Islamic debt rose 6.2 per cent to US$13.8 billion, data compiled by Bloomberg show. Global sukuk yield averaged 3.1 per cent, down from a record 14.9 per cent in February 2009 during the credit-market squeeze.
"The loan market is on a downward trend because sukuk are getting more competitive and acceptable," Datuk Mohd Effendi Abdullah, the Kuala Lumpur-based head of Islamic markets at AmInvestment Bank Bhd, said on Wednesday. "There are also cost savings from selling sukuk as yields have fallen quite a bit."
The trend is likely to continue as Middle Eastern banks follow a process started by Malaysian lenders in taking a greater role as debt arrangers, rather than just suppliers of funds, Rafe Haneef, chief executive officer of HSBC Amanah Malaysia Bhd here, said in an interview recently.
Standard Chartered plc projects sales of notes that comply with Islam's ban on interest will surpass 2012's all-time high of US$46.5 billion this year.
HSBC Amanah is the syariah-compliant unit of HSBC Holdings plc, this year's biggest underwriter of Islamic bonds, ahead of Germany's Deutsche Bank AG and the UK's Standard Chartered. The companies have arranged respective sukuk sales of US$2.4 billion, US$1.5 billion and US$1.2 billion this year.
Top-rated companies can save as much as 30 basis points by selling Islamic debt as opposed to taking out a loan, Datuk Mohamed Azahari Kamil, chief executive officer at Asian Finance Bank Bhd here, said on Wednesday.
Syariah loans are priced the same way as non-Islamic lending, Mohamad Safri Shahul Hamid, the Kuala Lumpur-based deputy chief executive officer of CIMB Islamic Bank Bhd, a unit of CIMB Group Holdings Bhd, said yesterday.
Malaysia's base-lending rate, used as a benchmark, has been fixed at 6.53 per cent since November 2011, Bank Negara Malaysia data show, more than the 2.85 per cent yield on the Southeast Asian nation's dollar-denominated sukuk maturing in 2021.
While sales of Islamic debt are rising, demand for syariah loans won't disappear as there's still demand from lower-rated companies and individuals, Azahari at Asian Finance said. Bloomberg