Kuwait Finance House (KFH) is exploring the possible sale of assets including its Malaysia unit, as the Islamic lender looks for a leaner structure while seeking greener pastures through its Turkey franchise.
KFH, Kuwait's second largest lender and one of the world's oldest Islamic banks, is restructuring activities ahead of a planned divestment by its largest shareholder, the Kuwait Investment Authority (KIA).
Last week, KFH said it had hired Credit Suisse to advise on its options, including the potential sale of a Malaysia unit launched in 2005 that serves as a hub for southeast Asia. KFH did not give further details; a spokesman declined to comment.
A shift away from Malaysia, where KFH holds a valuable licence but lacks scale, would help it focus on Kuveyt Turk, the largest Islamic bank in Turkey with over 500 branches.
"With looking to leave Malaysia, our view is that KFH is reviewing all its investments outside of Kuwait and not just Malaysia," said Mahin Dissanayake, a director at Fitch Ratings.
"Certainly Turkey has a lot of trading links with the Gulf. There's an Islamic market there that hasn't been tapped that much. The opportunities are there, there's an entry point."
Kuveyt Turk, 62 percent owned by KFH, is in expansion mode: it plans to launch Germany's first full-fledged Islamic bank in July as a gateway to Europe and has applied to issue a 1 billion lira ($376 million) Islamic bond as it secures lower-cost financing.
It also plans to establish a wealth management unit to widen its product range, according to two sources with direct knowledge of the matter. Kuveyt Turk declined to comment, saying it would disclose expansion plans shortly.
KFH Malaysia is in better shape now than in 2009, when it incurred heavy losses in its corporate portfolio, although its impaired loan ratio remains higher than the industry average.
It holds a 1 percent share of total bank deposits, while the Malaysian Islamic banking sector has doubled its assets in the last four years. In April, KFH Malaysia appointed its fourth chief executive since 2005.
A source at KFH said the review of the Malaysia unit was at an early stage, with options ranging from an outright sale to retaining a presence focused on a few business lines.
The reorganisation could give parent KFH, rated A-plus by Fitch, a stronger position as its credit ratings are underpinned by support from the KIA, which said last October it would revive plans to sell its 24.1 percent stake in the lender. The KIA did not set a date for the sale.
An exit by KFH from Malaysia could reignite consolidation in the country's Islamic banking sector, after a proposed merger among three local lenders was abandoned in January.
"The current Islamic finance sector remains competitive with increasing pressures on banks' margins, and therefore any M&A deals would benefit smaller players," said Sharidan Salleh, assistant vice president of ratings at Kuala-Lumpur based rating agency MARC.For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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