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Islamic banks consider issuing subordinated Sukuk seeing rising demand in Turkey


24 Feb 2013 07:34 GMT   التعليقات ()       إضافة تعليق       طباعة       إرسال لصديق

Bank Asya

Istanbul: Islamic banks in Turkey are pondering over to issue subordinated sukuk seeing the strong investor demand and a need to improve capital adequacy ratios. This was said by bankers and analysts in the country.

Ibrahim Oguducu, Head of the financial institutions business at Bank Asya – the country’s largest Islamic bank – said that longer-tenor subordinated sukuk would help balance mismatches between the maturities of banks’ liabilities and assets, while diversifying their funding sources.

“A public subordinated sukuk transaction would definitely attract more investor appetite than murabaha,” said Oguducu, declining to say whether his bank specifically is considering such an issue.

Turkey’s four Islamic banks have so far issued only two sukuks; both were from Kuveyt Turk, which is 62 percent owned by Kuwait Finance House and raised a total of $450 million in 2010 and 2011.

That is likely to change soon. Bank Asya said in December that it was finalizing a 100-150 million lira sukuk issue and also planned a $200-300 million dollar-denominated sukuk in the next two or three months.

Officials at Al Baraka Turk, a unit of Bahraini lender Al Baraka, have been talking about a $200 million sukuk issue for over a year.

The Turkish government’s landmark issue last September of a $1.5 billion sukuk, which drew massive demand, may be the trigger for such plans finally to go ahead.

While subordinated instruments are more expensive for issuers than their secured counterparts, the current appetite for Turkish debt seems strong enough to translate into favorable pricing for the banks, protecting their profit margins in the increasingly competitive banking sector.

With Basel III global banking standards expected to be phased in from this year, some Turkish banks could consider subordinated instruments to raise capital, according to Alex Roussos, Counsel at the Norton Rose law firm in Dubai.

“Current capitalization levels of certain banks and the desire for innovation would encourage them to consider such a structure,” Roussos said.

“Where the underlying credit is solid and the issuer can present a good story, the hike in pricing of a subordinated sukuk will not be as painful. Issuers know they will still be able to get a decent pricing despite the subordinated nature of the instrument,” he added.

“Participation banks like Al Baraka and Bank Asya have relatively low capital adequacy ratios. Subordinated bonds will boost their CAR and they will have a freer hand in giving out loans,” said Duygun Kutucu, senior analyst at brokerage Burgan Securities.

“I think these (subordinated sukuk) will have a more profound impact on loan growth,” he added.

Source: Al Arabiya Digital

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