NBK¶s Islamic leasing funds flourish in Kuwait

Published: Jun 20, 2010 23:16 Updated: Jun 20, 2010 23:16

LONDON: Kuwait¶s largest bank, the National Bank of Kuwait (NBK), could perhaps appropriately adopt the sobriquet as the world¶s leading Islamic leasing bank just as HSBC Amanah has aspirations of being the world¶s local Islamic bank. In the space of a fortnight NBK has launched its latest tranches of leasing funds under its KD Ijara and Thahabi Ijara Fund brands. Such is the pent-up demand for these investment products that the entire subscription to NBK¶s Islamic KD Ijara Fund IV was fully subscribed on the first day of its offering period on June 13 with a fund size of 33 million dinars. The offering was supposed to close on July 29. The first in this series was launched in June 2009 and assets are invested in an unincorporated investment fund that invests in the Wafra Ijara KWD Fund IV. The same investor appetite was repeated for NBK¶s Thahabi Ijara Fund VI, a premier NBK US dollar Islamic leasing investment vehicle, launched earlier in June 2010. Assets of this fund are invested in an unincorporated investment fund that invests in the Wafra Equipment Income Ijara Fund. The offer period officially closes on July 1. NBK also has a number of close-end Islamic ijara funds. With these two recent launches, the stable of NBK ijara offerings now total a staggering 16 funds, the single largest ijara fund offering by any financial institution in the world. NBK reported net profits of $264 million for the first quarter of 2010 compared with $220 million for the same period in 2009, an increase of 20 percent. As of end of March 2010, NBK Group¶s total assets reached $44.1 billion whilst total shareholders¶ equity reached $6.2 billion. Financial ratios remained strong with ROA (Return on Average Assets) reaching 2.4 percent and ROE (Return on Equity) 18.1 percent. According to Nabil Maroof, NBK Capital¶s Managing Director of Asset Management, the Islamic KD Ijara Fund IV was launched in response to the increasing demand for ijara funds and ³the success of NBK¶s ijara fund series is down to investors¶ demand for superior quality coupled with NBK¶s widespread expertise and conservative approach which emphasizes the need for attractive returns and capital preservation.´ Both funds like the previous NBK ijara offerings will invest all of its assets in the purchase of equipment or portfolios of equipment which will in turn, be leased to diversified high quality lessees with a particular focus on "Fortune 1000" companies and those that are found to be of high credit quality. These contracts involve the leasing of various types of mission critical equipment including manufacturing; IT hardware including mid-size and mainframe computers and peripherals, storage equipment, software, copiers, machine tools, automotive, testing equipment; construction materials;

or a minimum continuous monthly salary transfer of 1. thus reducing the risk rate.5 percent.telecommunication equipment.500 dinars. According to NBK. Qualification for the Thahabi package is subject to meeting the minimum deposit criteria of 30. mortgages. offsetting increased credit losses that result from a typical recession. ijara transactions have shown that they typically outperform during economic recession as companies decrease their capital expenditure. The Thahabi Ijara Fund VI is the latest one to be launched. The Thahabi Ijara Fund VI will invest its assets in the purchase of equipment and in high quality leases that deal mainly with the largest 1. whether Islamic or conventional. Ijara is a staple Islamic form of financing and investment. Malaysia. Thahabi is the premier package from NBK that offers customers personalized and "best in class" products and services. NBK¶s assistant general manager. NBK stresses that its family of ijara products have been some of the bank¶s most successful investment products.000 dinars in any interest or non-interest bearing account. . hire purchase and investment products. material handling and other types of equipment to credit-worthy companies. the UAE and Turkey are well-established small-ticket leasing markets. Lessees also tend to retain equipment for longer periods. According to Adel Al Jenaee. Consumer Banking Group. Kuwait. ijara has found a niche which has remained attractive to investors delivering predictable and stable returns. The fund is expected to deliver an annualized rate of return of 6. The fund allows investors to reap the benefits of monthly income distributions at an expected annualized rate of 6 percent in Kuwaiti dinars. and has a 5-year term with a possible 2-year extension and provides investors with the opportunity to enjoy steady monthly lease income on a Shariah-compliant basis.000 companies in the US with high credit quality. NBK currently has five active funds under the Thahabi label. In a market when other asset classes such as real estate. this fund is limited to Thahabi customers. The equipment portfolios of the fund in terms of type and tenants are diversified. The fund intends to make 60 to 84 payments to each investor of lease income at a Lease Yield to be fixed at the end the subscription period. networking equipment. trade finance. equities and bonds including Islamic bonds (sukuk) have come under tremendous pressure. The Islamic KD Ijara Fund IV is aimed at retail customers seeking low risk investments. preferring to lease critical equipment instead. Ijara like murabaha are popular Islamic debt instruments and are the most widely used Shariah-compliant consumer finance products especially for equipment leasing.

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