The Bahrain-based Al Baraka banking group is considering issuing subordinated Islamic bonds through its South African and Pakistani subsidiaries as a means of boosting their regulatory capital, the chief executive told Reuters following positive first quarter results.
While details have not been finalised, CEO Adnan Ahmed Yousif noted that the prospective deals could mirror a $200m sukuk issued by Al Baraka’s Turkish operations last year, a facility that enhanced the bank’s Tier 2, or supplementary, capital.
Al Baraka has built the bulk of its business outside the Gulf, and presently operates the only full-fledged Islamic bank in South Africa, where it maintains seven separate retail branches.
“We will try to do it as a subordinated, to raise capital adequacy ratios,” he said.
While Islamic finance typically utilises short-term syndicated loans, subordinated deals are increasingly substituted as Basel III global banking standards are phased in across the globe.
The CEO further noted that Al Baraka is already working with the authorities in South Africa and Pakistan on launching the Islamic bonds there, and added that the Islamic bank’s plans come at a time when sovereign sukuk are also expected from both countries later this year.
The news follow positive first quarter results for 2014, with the group recorded a net profit of $67m, and total assets exceeding $21bn. While these figures have only grown by one percent year-on-year, they also fall 19% above the budgeted profit for the period.
Yousif also noted that the Bank recently entered in new Musharaka financing deals that will be reflected positively on the Al Baraka’s results only during the second half of the year, and that the first quarter results are a reflection of considerable expansion efforts for the group.
Abdulla Ammar Al Saudi, deputy chairman, also took the opportunity to add: “Our activities during the first quarter of this year were actively focused on investment opportunities where we capitalized on our substantial resources and extensive geographical network.”
The subsidiary units of the Group continued opened 54 new branches during the quarter, and will be opening a further 84 new branches later this year, raising the total branch network of the Group to 569 branches, with 10,000 staff spread over 15 countries.
Yousif further continued: “It is worth mentioning here that the ambitious expansion programmes implemented by the group would result in huge expenses in the establishment of these branches and equip them with the necessary human and technical resources.
“However, the returns of these programmes in terms of profits, income, growth and expansion will be great and very positive and will be seen in the forthcoming years.”