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Manmohanvows broadeconomicreforms

14 Wednesday, May 20, 2009

MitsubishiUFG incursa $2.7bnannual loss

Banks cancels cards sans ‘Chip and Pin’ feature

Forum calls for central banksupervision of Islamic banks

Banks in the Kingdom arecancelling debit and credit cards thatdo not contain the advanced 'Chip andPin' security feature. The move is inline with a Central Bank of Bahrain(CBB) directive stipulating that allsuch locally issued cards must beEuro-pay Master Visa-compliant(EMV) by June 30.

New microchip embedded cardsare currently being issued, whichmakes it harder for unauthorised usersto access or copy private data.

“We are on the right track as allCitibank Bahrain customers will getthe EMV-compliant or microchipembedded cards by June 30,” saidAshish Bhugra, Country Manager,Citibank Bahrain.

“At Citibank we took the directiveto be EMV-compliant very seriouslyand we will meet the CBB deadline,”Bhugra added.

Chip cards are more secure, havemore applications and are moreconvenient than the existing magneticstripe cards. Chip cards are fastbecoming the standard paymenttechnology across the world. Inaddition, chip cards have much greatercapacity to store information andprogrammes than the current magneticstripe technology.

“We are canceling all credit cardscarrying no microchips as part of ournationwide drive,” another banker whoasked to remain anonymous told the

Bahrain Tribune.“The banks are given instructions

by the CBB to replace all non-chipcredit, debit and other cards by June 30this year,” the banker added.

“Though it's a gigantic task formajor banks to replace hundreds ofthousands of cards in a short span oftime we have no choice but to issuenew cards,” he said.

Chip and Pin technology uses anembedded microchip to encryptinformation, making it more difficultfor unauthorised users to copy oraccess the data on the card.

In the Middle East, the movetowards Chip and Pin technology is thelatest innovation in an evolving debitand credit card payment environment.

In the West, the technology hasalready been tested and proven in wideuse around the world and is quicklybecoming the new global standard forenhanced safety and security.

Microprocessor cards containvolatile memory and microprocessorcomponents. The card is made ofplastic, generally PVC, but sometimesABS. The card may embed a hologramto avoid counterfeiting. Using smart-

cards also is a form of strong securityauthentication for single sign-onwithin large companies andorganisations.

The new chip card, the bankeradded, works in a similar way like thatof existing magnetic stripe debit orcredit cards, as you swipe your cardand sign to authorise your transaction.

“Generally, instead of swiping, youwill ‘dip’ your card into the terminal,where it will remain throughout thepayment process. The customer willstill be required to sign to authorisetheir transaction,” he added.

Albaraka Turk ParticipationBank, a subsidiary banking unitof the Kingdom-based AlbarakaBanking Group, said yesterday itposted a net profit of $18.82million for the first quarter of theyear, up by 13 per cent over thecorresponding period last year.

Total assets grew 11 percent, while liquid assets wentup 55 per cent. In addition,finance and investments grewby four per cent, deposits by 13per cent and shareholdersequity by five per cent at theend of the quarter compared tolast year-end.

Operating income increasedby 32 per cent to $62.04 millionas a result of increased financeand investments. Afterdeducting all expenses, taxesand provisions which the bankhas prudently increased in lightof the prevailing economicconditions, net profit amountedto $18.82 million, the bank said

in a statement yesterday.Total assets increased to $3.18

billion at the end of the quarter.This increase was invested inenhancing liquid assets by 55per cent to reach $860.98million, which represents 32.14per cent of the total deposits andreflects the strong liquidityposition of the bank.

“The good financial resultsreflect the bank's ability to dealwith economic conditions andfinancial difficultiesexperienced by the Turkish andglobal markets,” said AdnanAhmed Yousif, Chairman of theBoard of Directors of AlbarakaTurk Participation Bank andPresident and Chief Executiveof the Albaraka Banking Group.

“Thanks to its strongresources and a wide networkof branches, the bank was ableto make the best of the currentconditions to expand itsinvestment and financeportfolio and strengthen liquidassets to safeguard against anypossible adverse consequencesarising from the crisis.”

A two-day annual Sharia conferenceorganised by the Accounting andAuditing Organisation for IslamicFinancial Institutions (AAOIFI),concluded yesterday at the SheratonHotel with the attendance of over 370international delegates.

The main topics addressed at thisyear's conference included Shariaperspectives on international non-Sharialaw being used as the governing law forIslamic finance, the application ofsystematic monetisation (Tawarruq) andreverse Murabaha, the potential forconflict of interest in Sharia SupervisoryBoards, as well as the current financialcrisis and its impact on the industry ofIslamic finance industry.

In addition to this, the conferencealso focussed on additional and uniquerequirements for the central bank

supervision of Islamic financialinstitutions, the enhancement of Shariaauditing and internal Sharia supervisionfunctions, the requirement and limitationon financial derivatives development forIslamic finance (Arboun, Salam, andDebt Trading) and risk shiftingmechanisms in Islamic finance.

The conference was attended byprominent Sharia scholars and industryrepresentatives. It was designed toprovide a platform through which theIslamic finance industry can addresspertinent issues and promote aharmonisation of global Sharia compliantpractices.

"Islamic finance is part of a rapidlydeveloping and expanding bankingsector. Consequently, its standards andcodes must also evolve while staying trueto its Sharia-compliant ethicalfoundation. As an emergent businesssector, Islamic finance needs a guidingbody to give shape to the market and

define the characteristics of the industry,”said KFH-Bahrain's Managing Directorand CEO Abdulhakeem Alkhayyat.

“KFH-Bahrain is always keen tosponsor this annual conference, whichhelps provide a stronger basis for thecontinued development of the industry,”he added.

"The AAOIFI took a great leap bygathering the major financial institutionsto this conference to set new standardsand ethical codes for Islamic FinancialInstitutions. The discussions held at theconference were tailored to steer theIslamic finance industry towards growth,and this influence will be felt worldwideas the concept of ethical bankingcontinues to develop and expand,especially in the wake of the recentglobal financial crisis,” Alkhayyat said.

The AAOIFI Sharia conference isheld each year to discuss the emergingrequirements and needs of Islamicfinancial institutions around the world.

Bahrain’s $500 million sovereign Islamicbond issue, which is due at the end of this month,will be the first major sukuk deal in the Gulf thisyear. The issue could act as a catalyst forrenewed interest in the sovereign as well ascorporate sukuk market of the Gulf region, astudy by international law firm Trowers andHamlins revealed yesterday.

“We believe that this first substantial dealcould help kick-start the Islamic debt market,triggering a number of other new deals to followlater this year if issuers become more confidentthat they can attract investors,” affirmed NealeDownes, Partner, Trower & Hamlins.

The average price of GCC corporate Islamicbonds grew by 29 per cent since the regionalmarkets plummeted to their lowest in Februaryand the dramatic recovery in Islamic bond pricesreflected the rising market confidence in theregion, the report said.

“Activity is beginning to pick up and we arenow advising a number of funds and investmentbanks on investment structures to invest in sukuk.”

Since the market's darkest day on February11, the average yield on corporate GCC sukukhas fallen from 17.2 per cent to 10.1 per cent andthe average credit spread over LIBOR hasnarrowed from 1,414 to 763 basis points. Incomparison, the average price of US corporatebonds remained virtually unchanged (falling twoper cent) over the same period.

Further, Downes said though the revival in

optimism was partially driven by the recent rallyin the world capital markets, confidence wasrising faster in the Gulf thanks to recovering oilprices and the $10 billion bail out loan granted toDubai by the UAE central bank.

“The recent sharp rise in the average price ofGCC corporate sukuk has been fuelled by thegrowing belief that corporate sukuk default riskhas been greatly reduced. Many corporate sukukare seen as effectively having a sovereign orquasi-sovereign risk attached.”

“The bailout of Dubai has demonstratedthere is a great determination to control theimpact of any further economic shocks withinthe region. The GCC governments do not wantto see a Lehman Brothers take place in theMiddle East. With governments standing sostrongly behind their economies, the perceivedrisk of defaults in the Gulf is now far lower,pushing down sukuk yields to much moresensible levels.”

The report said State-linked companies havebenefited directly from the federal loan, whichhas enabled them to resume the payment ofoutstanding bills. “With governments alsoactively helping companies refinancing loanscoming to maturity, this has helped decreasecorporate default risk.”

“Construction businesses, a large number ofwhich are government-owned, shouldparticularly feel the pressure ease as a result ofthe bail-out. As property is often the chosenunderlying asset used to secure Islamic bonds,improved optimism towards the property sectorwill hopefully have a positive knock-on effecton the sukuk market.”

RIYADH (AFP)Saudi Arabia's crisis-hit banking sector has

choked off finance for major projects, forcingthe government to step in to foot the bill, expertstold an international conference yesterday.

"We have not seen major financing of(private) projects last quarter and this quarter(of 2009)," Abdullah Dabbagh, president of theMa'aden mining group, said.

"It's a really serious issue for some of theseprojects," he told the Euromoney Saudi ArabiaConference in Riyadh.

The government last year took over financingof the multi-billion-dollar Mecca-Medina high-speed railway amid failure to find privatefunding for the project, said Yahya Al Yahya,chief executive of Gulf International Bank.

The $5.5 billion Ras Al Zour water andpower generation project could face the samefate, after the original bid winners failed to

come up with their own financing, Yahya toldthe conference.

"The international banks have largelywithdrawn from the market," said BradBourland, chief economist at Jadwa Investment.

And while local banks are in better shapethan their foreign counterparts, they do not havethe capacity to fund multi-billion-dollarprojects, he said.

Before the outbreak of the global financialcrisis, Saudi Arabia had mapped out a large listof ambitious new economic cities,petrochemical plants, railways, ports, power andwater projects for private investment.

But many of them have failed to take off due tothe global downturn. The government is alreadyspending heavily to boost growth and theeconomy will likely expand slightly this yeardespite a 10 per cent contraction in the oil sectordue to curtailed output and exports, Bourland said.

CBB move to checkcredit card fraud Mahmood Rafique

BANKING & FINANCE

PLUGGING LOOPHOLES: Ashish Bhugra.SAFE: A view of an Euro-pay Master Visa-compliant VISA credit card.

BUCKING THE TREND: Adnan Ahmed Yousif.

Albaraka Banking Group armposts $18mn net profit in Q1

K.V.S. MadhavBANKING & FINANCE

GCC sukuk marketsto get a major fillip

K.V.S. MadhavBANKING & FINANCE

FOR A COMMON GOAL: KFH-Bahrain's delegation to the AAOIFI (from left) Qusay Al Sabt, Faruq Silveira, Osama Taqi, Mohammed Ali,Isa Duwaishan, Khalid Rafea and Sattam Al Gosaibi.

Mahmood RafiqueBanking & Finance

BurgerFuel signs pact for Bahrain foray

New Zealand based burgerrestaurant franchise BurgerFuel saidyesterday it signed a master franchiseagreement with Saudi Arabia-basedAbdulla Fouad Group for a foray intoBahrain and Saudi Arabia.

The agreement marks the second

Master Franchise deal for the companyoutside Australasia, and will facilitatethe opening of outlets across Bahrainand Saudi Arabia. The company,however, did not specify theinvestment volume.

“There is a lot of respect both waysfor making this deal work and we willhave a strong partner who could lead to

other opportunities. Saudi Arabia, witha population of around 28 million,should be a good market for us. Theregion has a large majority of youngpeople, who want western concepts.Convenience food has become a largepart of their culture,” said JosefRoberts, Executive Director ofBurgerFuel.

Senior Business Reporter

Banks stop funding toprivate Saudi projects