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Islamic Banking Murat ÇETİNKAYA Kuveyt Türk
Islamic Banking Murat ÇETİNKAYA Kuveyt Türk
MURAT ÇETİNKAYA
Executive Vice President
Kuwait Turkish Participation Bank
Istanbul
2011
Agenda
1. What does “Islamic banking” stand for?
Market-driven proposition
− Retail demand has historically the backbone of the industry
− Sensitivities to principles more visible on retail deposit
− But corporates and even sovereigns showed appetite for the products
− Market-driven product development proved to be successful
− Self-regulating organisations accompanied global Islamic banking boom
Global scale
− More than 250 Islamic banks worldwide operating in over 75 countries
− A wide range of interest varying from U.K. to Singapore
− Widening customer base including sovereigns to top global corporates
to tap Islamic finance markets
Islamic finance industry is developing a global reach…
Reach and richness
Mainstream relevance
Niche presence
Engaging with regulators
Conceptual exploration
Russia: China:
Increasing interest Active member
of Islamic
…with worldwide momentum VTB – KFH/LMH
partnership Financial
Services Board
(2004)
Germany:
Kuwait Turk received licence
UK:
for a branch
Five active Islamic
Saxony issues
banks
E100m Sukuk (2004)
Sukuk on its way
Japan:
France : JBIC exploring
Recent declaration Islamic
of Islamic Banking interest Turkey: financing
25 years of opportunities
Kuwait & UAE:
Islamic banking Hub for Islamic (Dec. 2006)
experience banking
Saudi Arabia:
95%+ of new consumer Bahrain: Singapore:
lending is Islamic (2006) Leading Islamic Active in
• Retail market rapidly financial centre, and developing
converting to Islamic housing regulatory Islamic finance
(2006) bodies Malaysia:
Islamic product and
industry, development and
sophistication leader
Worldwide (2003)
equity mutual
Compliant Assets
Sukuk 0.1%
Worldwide (2008)
funds funds
7.0%
2.5% 3.5%
Islamic
banking
86.9%
Still new markets exist that did not yet meet with Islamic banking and finance
The global Islamic insurance (Takaful) market is estimated to reach USD 20 billion
Most Islamic financial institutions are highly liquid, and seek new asset classes
and markets to diversify
– New treasury products and investment securities are to emerge
– Capital markets developments: New sukuk issuances expected to tap the market
Strong growth of
GCC economies
Retail customer
commitment
Islamic banking, a booming $US1 trillion global industry that prohibits speculation and
high levels of debt, has been relatively unscathed by the credit crunch.
Standart contracts
Principles sources
– Musharaka (Partnership)
– Religious basic
sources – Mudaraba (Fund management)
Standart contracts
Principles sources
– Musharaka (Partnership)
– Religious basic
sources – Mudaraba (Fund management)
– Qiyas (analogy)
Principles filter – Ijara ( Lease)
• With the development and boom of Islamic banking, it became clear that :
− Islamic banking has roots in religion and ethics but it is not a “religion activity” and “not
confined to Muslim population”
− Islamic banking is not something “from and for GCC or Muslim world”, it is a global concept
− Islamic banking has some limitations and border lines, but it is acknowledged that it can
provide solutions in a wide scope of areas ranging from retail banking to investment banking.
Islamic finance is embedded within values
Integrates a wider
Synthesis of Islamic law
and contemporary finance Client Fulfils range of customer base
affinity with certain sensitivities
aspirations
Builds
systematic
checks on
Ethical Parallel
Responsible financial
investment trends
finance providers
ECONOMIC SOCIAL
IMPERATIVE IMPERATIVE
ZONE OF
SUSTAINABILITY
Islamic
prohibited businesses NGOs
sectors not-for-profits
• Dedicated people
− Greatest intangible to enable Islamic finance and build its future
− Human capital development: bankers and scholars
Key
enablers • Committed sponsorship
− Academic input to formulate visionary framework and development
− Capital sponsorship to bring plans to life
• Proactive engagement
− Regulators, practitioners and scholars to set a common agenda
• Kuwait Finance House K.S.C. (KFH) was established in the State of Kuwait in
1977, as the first bank operating in accordance with the Islamic Banking
principles.
• KFH is listed with the Kuwait Stock Exchange (KSE), with a market capitalization
of US$ 9.55 Billion as of 22 June 2009. Assets total US$ 37 Billion and deposits
amount to US$ 24 Billion as at Q1 2009.
• In the global Islamic arena, KFH is in the forefront of the industry in terms of
Key international presence, spectrum of activities, strategic alliances, networking and
innovation.
Facts
• KFH has been awarded by the Banker Magazine as the World’s Best Islamic
Financial Institution, and for third successive year it has been awarded by
Euromoney magazine as the best Islamic Bank in the Middle East.
• KFH is engaged in providing Islamic banking services, and its spectrum includes
consumer banking, corporate finance, Islamic capital markets, real estate finance,
structured finance, investment portfolios, and other products and services.
Overview of Kuwait Finance House
KFH Research Ltd is the world's first Islamic investment research arm to be established by an Islamic
Bank. A direct subsidiary of Kuwait Finance House, KFH Research was established in 2007,
comprising industry professionals and 'star' research analysts with broad experience in Islamic finance
& global markets. Below is a sample of their reports:
KFH GROUP: A SAMPLE
Next Steps
SOVERIEGN SUKUK ISSUANCES ARRANGED BY KFH
Bahrain Monetary
KHAZANAH NASIONAL Agency
Dubai Civil Aviation UAE Saxony Anhalt Government of Qatar
US$ 750 Mn US$ 250 Mn
Sukuk US$ 1 Bn EUR100 Mn US$700 Mn
Sukuk
Sukuk Sukuk Sukuk
Co-Lead Manager Lead manager
Joint Lead Manager
2006 2003
2004 Co-Lead Arranger Co-Lead Manager
2004 2003
ISSUER KHAZANAH Government of Dubai, Federal State of Government Bahrain
NASIONAL through its DCA Saxony Anhalt of Monetary
Qatar Agency
AMOUNT US$ 750 Mn US$1 Bn EUR 100 Mn US$ 700 Mn US$ 250 Mn
TYPE Exchangeable Sukuk Sukuk Al-Ijara Sukuk Al-Ijara Sukuk Al-Ijara Sukuk Al-Ijara
UNDERLYING Malaysia Telecom Property Assets Property Assets Property Assets Property Assets
ASSETS Shares
UTILIZED General Governmental Construction of State Development Construction of Hamad To address the liquidity
Purposes International Airport Medical City requirements of
Islamic fin. Institutions
DISTRIBUTION • Middle East (N/A) • Middle East (73%) • Middle East (60%) • Middle East (72%) • Middle East (73%)
BY GEOGRAPHY • Asia (N/A) • Asia (11%) • Europe (40%) • Asia (14%) • Asia (11%)
• Europe (N/A) • Europe (16%) • US (3%) • Europe (16%)
Overview of Kuwait Finance House
Shareholder structure
• Kuveyt Turk began operations in 1989 .
1.05%
• Market share of Kuveyt Turk among participation 9%
banking sector is currently 22.5%
9.00%
91.2
90
80
67.0
70
60
50 40.0
40
30
18.1
20
10
0
2005 2006 2007 2008
Distribution 120 branches: 119 in branches in Turkey, 1 in Bahrain and 1 Financial Services Branch in Germany
Breakdown
of total
cash loans
0 0
2005 2006 2007 2008 2005 2006 2007 2008
Net loans Other assets
Deposits Equity Other liabilities
(1) Audited IFRS accounts for 2004-2006-2007 and draft accounts for 2008
Leading platform and innovator
• Focus on building long-term client relationships • Offers one of the widest range of products
amongst participation banks
• Strong brand name and sticky retail base
Performance
Category Actions taken Future upside
2007 2008
(1) Gross loans – Annual increase rates (3) Fee & commission income (% of Financing income )
(2) Interbank Loans and Deposits not included. (4) Total impaired receivables / total gross loans
Strategy
Capitalise on advanced
retail / SME franchise
Improve operational
efficiency through cost
control initiatives
Become Turkey’s leading participation bank and one of Turkey’s top 10 banks
Strategy in International Banking
• Raised US$200m through a syndicated commodity Murabaha transaction for Kuveyt Turk in 2006
Key • Arranged US$240m of international syndications since 2006
highlights • Correspondent banking relationship with around 1,000 financial institutions in 96 countries
International expansion and access to Gulf investors key to growing ahead of the market
Let’s move together further ahead to explore
new peaks and horizons of Islamic banking
Thank you
Murat Çetinkaya
EVP, Kuwait Turkish Participation Bank