Kuwait Finance House (KFH), one of the pioneering Islamic financial institutions in the world, is spearheading a global expansion drive which is yet another sign that the Islamic finance market is bouncing back, albeit a bit more cautious and selective.
KFH expansion activities have an impressive reach and range from Saudi Arabia, to Russia, China, Singapore and Australia. The bank now has a global branch network of 175, primarily in Kuwait, Bahrain, Malaysia and Turkey. Perhaps more importantly, the bank has re-entered the US real estate market and is indeed in the process of closing a $250 million multi-family real estate transaction in the Chicago area.
Bader Al-Mukhaizeem, chairman and managing director of KFH, stressed in a statement that the Islamic bank’s global expansion plans were on track.
KFH is particularly heartened by the approval of a banking license a few weeks ago by the Saudi Arabian Monetary Agency (SAMA) for the Saudi Kuwaiti Finance House (Saudi-KFH) with a capital of SR500 million. KFH considers the Saudi market one of the most important in the Islamic finance sector given the Kingdom has the largest pool of private liquidity, estimated at over $1 trillion. In early April, Ali Al-Ghannam, head of International Real Estate at KFH, was in the US to finalize the bank’s latest deal, which signals the return of the Islamic bank to the US market after a few years. However, KFH still has two existing long-term real estate portfolios in the US which have a number of years to maturity.
China is becoming a major market for KFH. Last year, KFH invested $275 million in the Peninsula Real Estate Project in China. According to a senior bank source, KFH has recently signed a $500 million Mudaraba agreement with a local Chinese partner to finance real estate transactions in Shenzen in mainland China. KFH is in fact in the process of opening an office in Shenzen (KFH China) and follows the recent establishment of representative offices in Moscow in Russia (KFH Russia); in Australia (KFH Australia) and in Singapore (KFH Singapore).
At the same time, KFH’s Turkish subsidiary, Kuwait Turk Participation Bank, has received approval from the German banking regulator to open a branch in Germany, and has also set up an Islamic finance entity in Bahrain called Capital Turk to complement KFH Bahrain, a wholly-owned Islamic investment bank authorized by the Central Bank of Bahrain.
Another KFH subsidiary, the Liquidity Management House (LMH), set up last year to spearhead the bank’s Islamic capital markets activities, recently signed a memorandum of understanding (MoU) with VTB Capital to develop Islamic financial products for the Russian and CIS market, which is increasingly interested in such products to finance development and infrastructure and to diversify investment tools. VTB Capital is in the process of setting up an office in Dubai to consolidate its activities with the Middle East.
KFH, according to Al-Ghannam, has been less affected by the financial crisis and the credit crunch, whose impact on the Kuwaiti real estate market, he maintains, has been mostly psychological because there remains ample liquidity in the market, but people are holding on to their funds because of a lack of confidence in the market. “We are a solid institution but we are careful. We had the opportunity to successfully liquidate our real estate funds in the US, UK and Europe from 2005. We are also in the process of liquidating our Pavillion Fund in Malaysia. Subsequently, our real estate assets have declined from $6 billion in 2006 to $3 billion now. We also have a long-term Al-Nibras II Fund in Malaysia which has invested just under $1 billion in the South Johor Economic Development Project,” he confirmed.
The success of KFH in Malaysia where it now has six branches is allowing it to use Kuala Lumpur as a hub for expansion further into the ASEAN region. During a visit in April 2009 by Irman Gusmant, the representative of the Indonesian president, to KFH headquarters, Chairman Al-Mukhaizeem confirmed that the bank was studying the Indonesian market, which will be one of the key markets for Islamic finance in the region in the future. KFH is expected to open a presence in Indonesia, which is the most populous Muslim country in the world with over 210 million.
Going forward, KFH sees huge opportunities in East Asia — Japan, China, Malaysia, Singapore etc. The US and UK, says Al-Ghannam,” are markets which you cannot ignore. The UK is a favorite market for us where we had a very successful Al-Manar Fund. We are looking for the right time and opportunity to re-invest in this market. We would love to be part of the London 2012 Olympics projects through financing a transaction or so, because it is a huge project. We are interested in assets that are based on a natural, not artificial, need for development.”
KFH has long been seen as the laboratory for the global Islamic finance industry both in terms of product innovation and human resource development. Over the years it has turned out tens of Islamic bankers who have moved on to run institutions in other countries. Exporting Islamic finance human capital, in fact, is what Kuwaiti minister of state for housing and development affairs, Moudy Al-Homoud, has urged KFH to leverage during a visit to the bank’s headquarters in March.
KFH earlier this year reported total profits of KD379.35 million for 2008 with assets increasing to KD10.54 billion and deposits to KD6.612 billion. The KFH board recommended a 40 percent cash dividend, and a 12 percent stock dividend to shareholders for 2008.
Link: http://www.arabnews.com/?page=6§ion=0&article=122190&d=4&m=5&y=2009
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