Opening Keynote Address by Mr Ng Nam Sin, Assistant Managing Director (Development), Monetary Authority of Singapore, at the 17th Annual World Islamic Banking Conference, Bahrain, 24 November 2010, 9.15am, Bahrain time (2.15pm Singapore time)
THE NEW FINANCIAL LANDSCAPE: CATALYSING THE GROWTH OF ISLAMIC FINANCE IN THE ASIAN MARKETS
His Royal Highness Prince Salman bin Khalifa Al Khalifa,
Ladies and gentlemen,
Good morning. I am pleased to join you for the prestigious World Islamic Banking Conference (WIBC). I would like to thank the Central Bank of Bahrain (CBB) and MEGA for inviting the MAS to participate.
The new financial landscape
2 Let me start by sharing some observations on economic growth prospects from an Asian perspective. The world economy has recovered broadly, although somewhat unevenly. After a better-than-expected first half of 2010, we have seen a moderation of global economic conditions. The IMF has projected that global growth will be 4-5% this year with greater contribution from emerging and Asian economies, which are leading world growth for the first time. The ADB has lifted its 2010 GDP forecast for Asian economies to 8.2% before easing to 7.3% in 2011. The OECD also sees The Association of South East Asian Nation (ASEAN)’s larger economies expanding at a sustainable 6% clip over the next five years. Singapore’s economy is expected to grow by 15% in 2010.
3 Asia has benefitted from its pre-crisis positioning and secular trends. Firstly, having re-built their economies following the Asian crises in the late 1990s, Asia was in better shape and less affected by the excesses that triggered the global meltdown. Secondly, Asia’s younger, well-educated workforce and abundant resources will attract sizeable capital investments and fuel greater domestic demand. The growth of Global-Asian enterprises underpinned by the region’s high savings rate will see faster wealth accumulation. Thirdly, the long-term push towards greater integration of Asian economies and re-distribution of their production structures has begun to pay off. Intra-regional trade growth will be more dominant than before as a result of robust domestic demand and the lowering of tariffs and barriers from free trade agreements. For example, China-ASEAN trade has jumped almost 50% in the first nine months of this year.
4 Emerging from the worst of the crisis, the global financial landscape will be a markedly different one from before. It is widely acknowledged that global finance must re-focus itself on this fundamental role of enabling productive activities.
Tremendous potential for Islamic finance in Asian markets
5 As Asia expands, its demand for financing and investment into real economic activities including corporate, trade and infrastructure financing will be large. The region is expected to account for one-third of global trade and would require infrastructure financing of US$8 trillion up to 2020. As more than 60% of the world’s Muslims live in Asia, and coupled with its increased affluence, the conditions are ripe for Islamic finance to ride on Asia’s growth. Indeed, the Banker’s annual survey of Islamic financial institutions shows that Asia’s Shariah-compliant assets grew at a robust 23% this year. Notwithstanding the promising potential for Islamic finance in Asia, Shariah-compliant financial institutions like their conventional counterparts have to learn from the global crisis.
6 The industry faces several challenges. Let me just highlight three key issues facing Islamic finance in Asia.
7 Firstly, as was noted by Governor Rasheed Al Maraj, most Shariah-compliant banks like conventional banks need to continue to improve their risk management and corporate governance standards. Asset-liability management, liquidity and risk concentrations are some of the key issues confronting financial institutions. They need to ensure their business models are sustainable in the long-term.
8 Secondly, the Islamic Financial Services Board (IFSB) has pointed out that Islamic banks need an international Islamic short-term liquidity market. This will further facilitate asset-liability management. In Asia, we need an active pan-Asian Islamic securities market to provide more short-term liquid instruments for Islamic banks as they expand across the region. It is encouraging that more countries in Asia are now familiarising with Islamic finance and its structures, and have expressed interest to issue sukuk. Several are adopting the necessary legal and regulatory frameworks to enable Islamic finance to take root and grow. More focus on growing the issuance of tradeable liquid instruments, over time, would help to improve liquidity and cross-regional flows.
9 Thirdly, a shortage of human capital; the number of financial professionals who are well-versed in Shariah-compliant products is still relatively small. We need more universities and training institutes to offer better quality education and training in Islamic law and finance in order to meet the rising demands of the industry as it embarks on the next phase of growth.
10 In this regard, I see scope for even closer cooperation between the Middle East and Asia. It is encouraging that international institutions like the Islamic Development Bank (IDB), IFSB, Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) and International Islamic Financial Market (IIFM) have been active in developing Islamic finance and global harmonisation of standards. For example, the IIFM in Bahrain supported by financial authorities in Asia and Middle East is working towards greater standardisation of Islamic capital and money markets, including Shariah-compliant derivatives; and the IFSB, of which Singapore is a Council member, is active in building awareness and understanding across Asia.
Singapore as the Global-Asia hub supporting Islamic finance
11 On our part, Singapore is seeking to play a catalytic role in developing Islamic finance. To foster the growth of Shariah-compliant financial services, we have created a level-playing field within our existing legal, regulatory and tax frameworks so that Singapore-based financial institutions can offer Islamic financial services competitively. So far, we have managed to leverage on our strengths as an established financial centre to make progress in a few areas, namely wholesale banking, asset management, capital markets and capacity building.
12 Islamic wholesale banking, though still a small part of our almost US$1 trillion Asian Dollar Market and domestic banking sector, has received greater attention lately and has scope to grow. For instance, Parkway Holdings, a Singapore-based healthcare firm, recently concluded the largest Islamic financing deal in Singapore thus far amounting to S$750 million (US$580 million) murabaha via a syndicated bank loan involving six banks including The Islamic Bank of Asia.
13 Our wealth management sector has rebounded strongly from the crisis. Total assets under management in Singapore reached a new high of S$1.2 trillion (US$930 billion) in 2009, up 40% from 2008. Notably, the Al Rajhi Group and Keppel T&T launched the world’s first Shariah-compliant global data centre fund in June 2010. We hope to have more fund managers and sovereign wealth funds establishing and investing in such Shariah-compliant infrastructure funds.
14 Our debt capital market has seen a number of large sukuk deals. In 2009, quality issuers like the IDB and City Development tapped Singapore’s sukuk market for about S$1.2 billion (US$930 million). This year, Khazanah Nasional issued the single largest, longest-tenured S$1.5 billion (US$1.2 billion) sukuk, which was four times oversubscribed. This sukuk wakalah deal demonstrated that sizeable, innovative Islamic financing transactions can be executed speedily by tapping the rich pool of funds and investors in Singapore.
15 Singapore is home to the largest real estate investment trust (REIT) market in Asia outside Japan with a combined market capitalization of about S$36 billion (US$28 billion). Earlier this month, the Sabana REIT announced its intended listing on the Singapore Exchange with Al Salam Bank Bahrain as a cornerstone investor. This would be the world’s largest Shariah-compliant REIT.
16 In creating the market infrastructure for Islamic financial institutions to operate more efficiently, Singapore became the first non-Muslim jurisdiction to issue sovereign sukuk. The MAS established its sukuk programme in early 2009 to enable Singapore-based financial institutions offering Islamic finance to meet their regulatory and liquidity requirements in a fully Shariah-compliant manner.
17 Finally, to meet the need for more finance professionals with the necessary competencies in Islamic finance, I am pleased to note that the Singapore Management University has set up an Islamic Law and Finance Centre. This is the first institution in the world to combine Islamic law, banking and finance programmes in a single, multi-disciplinary university centre. Beginning next year, SMU Law School will also be launching a post-graduate Masters programme in Islamic law and finance, which will be open to both lawyers and non-lawyers interested in pursuing a career in this field. We hope that more institutions will come in to help build greater capacity in Islamic finance.
18 In closing, we believe a new financial landscape is taking shape. As Islamic finance continues to grow, there is indeed scope for greater synergy between the GCC countries and Asia to foster long-term sustainable growth. Asia offers opportunities for Islamic financial institutions to diversify their markets and grow their international presence. Risk management and governance standards would need to keep pace with growth and here, the sharing of experience, establishing standards and capacity building are areas for greater cooperation.
19 Events and forums like the WIBC as well as its sister conference in Asia can bring the Middle East and Asia closer together. The inaugural WIBC Asia Summit was held in Singapore in June and attracted many senior decision-makers and industry participants. We are grateful that it received the strong support and participation of the CBB. We look forward to welcoming you all to the second WIBC Asia in Singapore on 8-9 Jun 2011.