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Wed 27 Oct 2010 12:18 AM

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Asia, Middle East institutions to create ‘mega’ Islamic bank

New entity to have a minimum capital of at least $1 billion, says Malaysia central bank governor Zeti Akhtar Aziz

Asia, Middle East institutions to create ‘mega’ Islamic bank
Malaysia will issue a license to a new Islamic bank to be jointly established by institutions from Asia and the Middle East.

Malaysia, the world’s biggest market for Islamic bonds, will issue a license before the end of this year to a new Islamic bank that will be jointly established by institutions from Asia and the Middle East, central bank governor Zeti Akhtar Aziz said.

The newly formed entity will have a capital of at least $1 billion, Zeti said in an interview late yesterday, without naming the companies or organizations involved. A second so-called “mega Islamic bank” permit may be issued by the central bank next year, she said.

Zeti said: “Part of the reason for this is to have the final piece of the jigsaw puzzle, to have a large player who can mobilize and intermediate large volumes of funds for businesses around the world.”

She added: “Right now, we have a large number of Islamic financial institutions but they don’t have the scale.”

Muslim majority Malaysia began pioneering Shariah compliant finance with its first Islamic bank three decades ago.

It is today responsible for more than 60 percent of the world’s $130 billion outstanding Islamic bonds, or sukuk, that comply with the religion’s bank of interest, according to data compiled by Bloomberg.

The new bank will be able to facilitate larger issuance of such notes, Zeti said.

The country has offered tax breaks and other incentives to attract global financial institutions including Aberdeen Asset Management Plc and Franklin Templeton Investments in a bid to cement its role as the global Islamic financial hub of Asia.

Kuala Lumpur is already home to the Islamic Financial Services Authority, a global standard setting body for an industry with $1 trillion in assets.

The ISFB this week formally established an International Islamic Liquidity Management Corp which will also be based in the Malaysian capital and issue short-term instruments to help Shariah compliant banks better manage funds.

In June, Malaysia’s central bank issued licenses to five foreign banks, including National Bank of Abu Dhabi and Indonesia’s PT Bank Mandiri.

It also issued permits for four operators of takaful, or Islamic insurance, in September.

The licenses are part of a government plan announced last year to attract foreign investment.

During an Islamic finance conference in Kuala Lumpur, Zeti said: “The motivation for this is to enhance our inter-linkages with other financial systems around the world and facilitate trade and investment activity.”

She said: “We have liberalized this market to allow for foreign currency-denominated issuance.”

She also added: “This will facilitate this market to grow further.”

Islamic banking assets in the Southeast Asian nation reached $109 billion in July, accounting for 20 percent of the country’s total, the finance ministry said in its annual economic report on October 15.

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