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Posts Tagged ‘Hong Kong

Opportunities lurk in financial gloom

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Points of Essence:

  • Hong Kong sees every opportunity to come its way despite the worrying global financial meltdown. It sets to boost its financial hub status by going aggresively to woo Islamic finance players to the island city. Providing appropriate tax incentives to bolster growth of the newest industry, other institutional and regulatory framework will certainly guide Hong Kong to reach out to a larger Islamic financial community. The address of Hong Kong’s Chief Executive says it all.

Chief Executive Donald Tsang

Donald Tsang The Asian Financial Forum was launched in 2007, partly to celebrate the 10th anniversary of Hong Kong’s reunification with the Mainland of China, and partly to address the challenges of a rapidly changing economic environment in Asia. At that time the sub-prime lending problem in the US was beginning to take hold, but no one could have predicted how deeply rooted the problem was or how quickly things would unravel in what some people like to describe as a “flat” world.

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Written by Suapi Shaffaii

January 21, 2009 at 4:33 pm

Riding The Islamic Banking Tide

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Points of Essence:

  • Hong Kong is still firm on the Islamic financial hub race despite the onslaught of global financial crisis. All the right infrastructures are being installed to accommodate Islamic finance. With a priority to develop Islamic bond market, Hong Kong is eyeing a strategic alliance with the established Islamic financial like Malaysia to boost its profile. Bernama has the report.

From Tham Choy Lin

HONG KONG, Dec 2 (Bernama) — Last October, Hong Kong Chief Executive, Donald Tsang, announced the island’s financial hub would establish itself as an Islamic finance centre.

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Written by Suapi Shaffaii

December 2, 2008 at 4:19 pm

CIMB Islamic launches 1st Syariah-compliant product in Hong Kong

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Points of Essence:

  • CIMB Islamic recently launched its Commodity Murabahah Deposit via its Islamic window in Hong Kong. Using commodity products as underlying assets, the Islamic money market instruments will tap into the potential market of Hong Kong as a vibrant Islamic financial hub as well as providing a window for the mainland market.

HONG KONG: CIMB Islamic, the Islamic banking arm of Malaysia’s second largest bank CIMB Group, on Tuesday launched its first Syariah-compliant product in Hong Kong and signed the first transaction with Hong Leong Bank for its Commodity Murabahah Deposit.

The product will utilise commodities like crude palm oil, metal or any tradeable commodities as its underlying asset.

CIMB Islamic chief executive officer Badlisyah Abdul Ghani said the Hong Kong Monetary Authority (HKMA) gave its clearance last week for the launch of the interbank money product.

“It is important for CIMB Islamic to be here because Hong Kong has great potential as an Islamic financial market,” he said.

HKMA deputy chief Eddie Yue witnessed the the memorandum of understanding signed between the Hong Kong branches of CIMB and Hong Leong, the first institutions based here to offer Islamic banking.

Hong Kong is charging ahead into developing an Islamic banking centre to tap the huge global Islamic assets that are estimated to reach US$1 trillion by 2010.

Badlisyah said the launch marked the opening of CIMB’s Islamic banking window not only in Hong Kong but also to mainland China where the group had acquired a 20 percent state in the Bank of Ying Kou in north-eastern Liaoning province earlier this year.

CIMB Islamic plans to expand from wholesale Islamic banking business in Hong Kong to other activities, namely asset management, and if viable, consumer banking.

“But in the long term, the biggest opportunity and probability is to do wholesale business and asset management. We are looking at a timeline of three to five years. Consumer banking is still quite remote,” he told Bernama.

The Commodity Murabahah Deposit based on the Islamic principle of Murabahah gives fixed returns to investors and is widely used in the global Islamic market to facilitate deposit-taking. It works through the purchase and subsequent sale of a commodity at cost plus a specified profit.

CIMB obtained Bank Negara Malaysia’s approval last December to undertake Islamic banking operations in all its overseas branches.

Hong Kong is an important platform into mainland China to which all eyes are turned to remain a growth engine for the stuttering world economy in the wake of the global financial crisis.

“When the market is opened to us, through our Hong Kong branch as well as Bank of Ying Kou, we will see how to develop wholesale banking, asset management and consumer banking on the mainland,” Badlisyah said.

The viability of starting consumer banking would have to be closely evaluated because the Muslim population was distributed widely across China, raising the question of how to service the market, he said.

“What we are going to concentrate on is the easy part, bringing what we have from Malaysia into this market. I think as for the mainland, the proper timeline is one to two years rather than immediate,” he added.

CIMB Islamic is a global player in the industry and is the world’s largest sukuk or Islamic bond issue with a 20 percent share worldwide.-Bernama

Written by Suapi Shaffaii

November 29, 2008 at 12:09 am

Hong Kong is making the right moves to attract Islamic finance, but will it work?

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Points of Essence:

  • Hong Kong’s entry into Islamic finance is beset by its rivals’ far advanced ventures into Islamic finance. Being a new kid on the block, Hong Kong needs to move beyond its pompous and glitzy marketing tools to start actual works in providing Shariah compliant financial services enabler. Currently working on its tax code to create a level playing field for Islamic finance products comparative to its conventional counterparts, its approximity to the mainland China is now being touted as the main driver of growth, thus a potential market for Islamic finance. Finance Asia has the report.

Islamic finance: Hong Kong’s latest asset

By Edward Russell

Once a niche banking product of the Muslim world, Islamic finance is becoming a global financial darling. Finance hubs from London to Hong Kong have expressed interest in, or initiated programmes aimed at, attracting Islamic assets and Islamic banks have stepped up, opening offices around the world. Islamic finance is becoming mainstream, even if some critics still think it is little more than a marketing gimmick.

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Written by Suapi Shaffaii

November 11, 2008 at 5:16 pm

Posted in General Issue

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Hong Leong Bank launches Islamic banking in Hong Kong

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Points of Essence:

  • Malaysian Hong Leong Bank becomes the first bank allowed to offer comprehensive Islamic financial services in Hong Kong. It aims to tap the markets of mainland China and West and North Asia by leveraging on Hong Kong’s status as an international financial centre.
  • The bank will initially offer a murabahah security, a product which is based on a price mark-up structure and helps in liquidity management and plans to offer pother roducts with sharia structures like ijara, mudaraba and musyarakah.

Reuters

HONG KONG — Malaysian lender Hong Leong Bank has become the first bank to be allowed to offer comprehensive Islamic banking services in Hong Kong.

The bank aims to tap the markets of mainland China and West and North Asia through this platform leveraging on Hong Kong’s status as an international financial centre.

Click here for more!

Written by Suapi Shaffaii

August 19, 2008 at 3:45 pm

Far Eastern Promise: Can Hong Kong Become an Islamic Finance Hub?

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Points of Essence:

  • Hong Kong may face obstacles in its bid to become an Islamic financial center but there are certain traits it has which may lead it to success. Its role as a conduit for investment in mainland China, and its existing financial markets platform will certainly work in its favor.
  • It has been all but the substantial developments to enable Hong Kong to emerge an Islamic financial center. However, lately there have been some progress.
  • Mutual cooperation with international regulatory and supervisory authorities, sponsoring Islamic finance related events and tax laws revision  among others are notable efforts by the Hong Kong government.

By Christopher F Richardson

Hong Kong has long been considered one of the major financial hubs of Asia and indeed the world. Yet Hong Kong has never been considered an active player in the rapidly growing field of Islamic finance. This may soon change, however, if the financial authorities in Hong Kong are successful in implementing their plans to transform the city into a significant global center for Shariah compliant investments. Hong Kong will face a number of challenges in its quest to become an Islamic finance hub, but certain unique traits are in its favor. There have been a handful of notable successes so far but Hong Kong has not yet proven itself in this emerging field. There are nevertheless a number of reasons to be optimistic about Hong Kong’s (and, more broadly, China’s) future role in supporting the burgeoning global Islamic finance market. Most importantly, Hong Kong is well-positioned to serve as a conduit for Shariah compliant investment between the Middle East and the Far East, especially in promising areas such as Islamic capital markets (including Sukuk) and in infrastructure project finance.

First steps

Over the past year, the government of the Hong Kong special administrative region has repeatedly announced its commitment to establishing the city as a legitimate competitor in the Islamic finance arena. Since then, there has been a fair amount of media ‘buzz’ and industry gossip on the subject.

With a few notable exceptions, however, most of the media coverage to date has focused on the promise of Hong Kong as an Islamic financial center, not on substantive accomplishments. Nevertheless, the Hong Kong government should be commended for continuing to reaffirm its commitment to making Hong Kong a hospitable environment for Shariah compliant financial services. Although it remains too early to tell whether Hong Kong will ultimately reach its goal, it is certainly clear that the Hong Kong government is making a determined effort. It has sponsored a number of events both in Hong Kong and abroad to raise awareness of the potential for Hong Kong to play a role in global Islamic finance. Donald Tsang, the chief executive of Hong Kong, toured several leading Islamic finance centers, meeting with government leaders, executives, bankers and regulators in Kuala Lumpur, Dubai and other key Islamic finance marketplaces. The Hong Kong Monetary Authority (HKMA) has also toured the Gulf States to drum up support for Hong Kong’s ambitions in the Islamic finance fi eld, likening the city to the nexus of a ‘New Silk Road’ between the Far East and the Middle East.

Among the most important initiatives in recent months involves the memorandum of understanding between the HKMA and the Dubai International Financial Center Authority (DIFCA), signed in May 2008, to foster cooperation in the development of Shariah compliant financial products and the financial infrastructures. This will include cooperation on standardization and harmonization of financial regulations, the exchange of advice, the promotion of training and education programs (including the facilitation of dialogue between Shariah scholars and boards), the fostering of cross-border transactions and payment systems to support Shariah compliant investments between the two regions, and other related initiatives aimed at furthering the growth of Islamic finance in both cities. It has also been reported that Hong Kong is reviewing and revising its tax laws, including stamp duties and taxes on profits generated by Islamic structured products. Hong Kong does not tax interest – such as that generated by a conventional bond – as income, but it does currently tax profits as income, which creates a tax barrier for profit based Shariah compliant products like Sukuk. Changing such laws will be necessary to make the city competitive as an Islamic finance hub.

There have also been a few isolated but noteworthy developments in the financial products market in Hong Kong in the field of Shariah compliant investment. Foremost, in November 2007 the Hang Seng Bank introduced an equities index fund which complies with Shariah precepts.

The Hang Seng Islamic China Index Fund tracks certain large Hong Kong and mainland Chinese company stocks traded on the Hong Kong exchange that satisfy a Shariah compliance screen established by the bank in conjunction with Dow Jones Indexes. Another factor in Hong Kong’s incipient Islamic finance marketplace involves the proposed issuance by the Hong Kong Airport Authority of a global Sukuk.

Unique attributes

Two things stand out which may make Hong Kong an ideal Islamic finance hub: (1) its role as a conduit for investment in mainland China, and (2) its existing financial markets platform. The city is an established global financial market, a distinction that is shared with other major financial centers like Tokyo, New York and London.

Hong Kong’s connection with mainland China, however, is truly unique and presents special opportunities for expanding commerce between the Middle East and the Far East. It may prove to be the ideal place for Muslim investors and Shariah compliant institutions to look to in order to bridge the gap between the Islamic world and the rapidly growing economies of China and, more generally, the developing countries in East Asia.

Now that China has opened up somewhat to foreign investment and is looking to spend its foreign reserves, there is enormous opportunity to invest in the Chinese economy. Yet despite this new receptiveness to outside investment and mainland China’s willingness to engage in commerce abroad, doing business in mainland China can be challenging and complicated. Given this, Muslim investors from abroad will likely be encouraged to play the mainland China market by way of Hong Kong.

Hong Kong has long been the key access point for investment into mainland China. This may prove to be the key pillar to support Hong Kong as an Islamic finance center. Given its respected common law legal system, less restrictive immigration policies, laissez faire capital markets regulations, low taxation, English language proficiency and freely traded currency pegged to the US Dollar, Hong Kong remains the financial services hub for the region.

Hong Kong, which is governed as a semi-autonomous unit of China, benefits from its own commercial laws and capital market system. With a well-established stock market and a critical mass of international banking professionals, it is already a world leader in conventional finance.

Much of the infrastructure needed to promote an Islamic finance marketplace is already in place, including the presence of seasoned regulators, a stock market, major trading houses, investment banks and accounting and law firms.

Special opportunities

The combination of Hong Kong’s existing financial sophistication and its role as the traditional gateway to mainland China makes it uniquely qualified to serve as an Islamic finance hub in Asia. If it can overcome the obstacles it currently faces and charge ahead boldly without losing the momentum it has gained in the past year, Hong Kong may well be able to transform itself into a key Islamic finance center.

In particular, Hong Kong has the potential to excel in promoting Shariah compliant project finance for infrastructure and energy projects. Hong Kong can also play a useful role as a regional, or perhaps even global, Islamic capital markets center (especially with respect to Sukuk issuance and trading).

It is predicted that over the coming decades China will continue to develop its infrastructure on a colossal scale as it continues its march towards modernity. In particular, China will have to continue to greatly expand its energy industry.

This will likely include the large scale construction of power plants, refineries, transmission grids, pipelines, ports and liquefied natural gas (LNG) terminals. For instance, Qatar and China have entered into contracts for the long term delivery of potentially billions of dollars worth of LNG imports, and the country is planning to build up to a dozen LNG import terminals in coming years.

Many of these infrastructure and energy projects will be ripe for project financing – an area of expertise in which Hong Kong banks and professionals already excel. Financing for energy projects can be accomplished, in most instances, in a Shariah compliant manner and several significant energy projects in the Gulf (including the Dolphin gas project in the UAE) have already utilized Islamic finance structures.

Muslim investors could therefore play a pivotal role in energy project development and financing in mainland China. This is especially true given the fact that a significant portion of the energy investments will

likely be made in collaboration with Middle Eastern nations, sovereign wealth funds and corporations which likely would prefer to use Shariah compliant techniques.

Given the tendency in the energy industry for energy producers and consumers to cooperate on massive infrastructure development projects, ideal opportunities for Middle Eastern investment into Chinese projects may arise. LNG projects in particular require considerable investment in new facilities, ships and related infrastructure, and typically the sponsors of such projects include both the source of the natural gas (for example, countries such as Qatar, Algeria, Malaysia and Indonesia) and the users of the imported natural gas (for example, South Korea, Japan and, increasingly, China).

With interests aligned in this fashion, Shariah compliant investment from the Middle East into the Chinese LNG, oil and gas, electric power and related sectors could eventually be measured in the tens of billions of dollars. Hong Kong is perfectly positioned to coordinate, promote and benefit from such investment.

Hong Kong could also prosper as an Islamic capital market hub. A declared goal of the Hong Kong government is the establishment of an active Sukuk trading market to complement the city’s existing well-respected capital market system. Hong Kong has deeply liquid markets trading a variety of conventional financial products and serving investors throughout Asia and beyond.

Hong Kong is well positioned to take advantage of longstanding relationships with capital-hungry companies in mainland China and throughout the Asia-Pacific region which may look to Sukuk issuance as a means of raising capital. A Sukuk platform (the issuance, listing and secondary trading of Sukuk) would complement the city’s existing financial services portfolio.

While Hong Kong can generally be described as a lightly regulated, low tax environment with deep liquidity and substantial financial flexibility, special rules (such as the tax rules on profits as discussed above) will need to be reviewed in order to make Hong Kong competitive with major Sukuk players like Dubai and Kuala Lumpur, where laws have been specifically tailored to focus on Islamic products.

Hong Kong will benefit from the lessons learnt by – and may well seek to emulate some of the successful initiatives undertaken by – other Islamic markets. Because Hong Kong already has a well diversified and long established financial markets system, grafting Islamic finance products onto it will merely add another layer to an already robust and complex system.

Challenges and competition

Despite the promise of Hong Kong as an Islamic finance hub, the city faces a number of challenges. Islamic finance continues to be regarded as somewhat exotic in Hong Kong, where terms like Musharakah and Sukuk remain largely unknown.

Financial professionals in Hong Kong have nonetheless exhibited at least a curiosity (if not outright enthusiasm) for the subject, if one can adequately judge their interest from attendance at Islamic finance seminars and related events. Besides, Hong Kong has only a handful of experts in Islamic finance. This is likely due to the fact that Hong Kong, out of a population of about seven million, only has at most a few hundred thousand Muslims. This is in stark contrast to existing Islamic finance hubs in South East Asia and the Middle East. Although worldwide the Islamic finance marketplace is still a relatively new phenomenon, there are already a number of established competitors with quite a headstart over Hong Kong -most with large

Muslim populations and boasting of strong Islamic finance banks and exchanges (many backed by substantial government support). Nations in the Gulf (particularly the UAE, Saudi Arabia and Bahrain) already have decades of experience in Islamic markets. In East Asia, Hong Kong faces direct competition from a number of sources. Malaysia remains the traditional Islamic finance powerhouse in Asia and is still one of the world’s largest Sukuk markets. Its capital, Kuala Lumpur, is already home to a substantial number of respected Shariah scholars and Islamic finance experts.

Upstart Singapore is actively pursuing initiatives of its own and DBS Group Holdings, Singapore’s largest bank, recently established the Islamic Bank of Asia to focus on Shariah compliant investment activities. Islamic countries in South East Asia such as Indonesia and Brunei have large Muslim populations from which to develop a retail market in Islamic products. Even Tokyo recently announced its intention to support the growth of Islamic finance activities in its market. Hong Kong will no doubt face stiff competition from these other players, but there is also room for collaboration.

On closer inspection, however, many of these seemingly intractable obstacles are perhaps not as challenging as they initially appear. First, if the dramatic growth in global Islamic markets continues, the rising tide may lift all boats. In other words, there may be room for several regional Islamic finance hubs, even in East Asia (especially if each specializes in particular areas of expertise).

Second, a lack of experts and expertise can be remedied by education and immigration. Hong Kong has long been a magnet for mobile expatriate professionals and is already home to a well-educated population eager to learn more about new and novel opportunities for economic success.

It is also clear that the government is making a determined effort to educate itself and inform local commercial leaders on Islamic finance. Finally, Hong Kong enjoys certain unique advantages that may eventually ensure its long term success as an Islamic finance center.

Way forward

Hong Kong has made some progress in the Islamic finance arena but still has a long way to go. For it to become an Islamic finance hub, the government as well as private enterprises interested in Islamic finance should take bold action to establish an environment that is conducive to Shariah compliant finance and investment.

This includes revising existing capital markets and tax laws so that they are compatible with Sukuk and related products and competitive with the regulatory regimes in other Islamic finance markets. This will be necessary for a Hong Kong Sukuk market to succeed amid competition from other established exchanges like Dubai and Malaysia.

Hong Kong should continue to build relationships and strengthen business connections with the Middle East and South East Asia and learn from the successes and failures of other Islamic finance market players. Already an attractive location for both local and expatriate professionals, Hong Kong should also seek to educate its business leaders on Islamic finance matters and encourage Islamic finance professionals and institutions to establish a presence in the city.

With its unique attributes, if Hong Kong is able to nurture its nascent Islamic finance marketplace, it could in short order be transformed into the primary proponent of that ‘New Silk Road’ with responsibility for coordinating both massive Shariah compliant investment into Chinese infrastructure and developing a thriving East Asian Sukuk market.

Source: Islamic finance news.

Written by Suapi Shaffaii

July 31, 2008 at 2:20 am

Posted in Financial Centres

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