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SCMP Reporter

Malaysian lender to leverage on its experience
Hong Kong's  first sharia-compliant Islamic banking service will be launched  today.
Hong Leong Bank, which offers both conventional and Islamic banking in its home market of Malaysia, said its Hong Kong branch would be able to sell products and services that were compliant with the sharia or Islamic law by leveraging on its Malaysian infrastructure and experience.
The bank had obtained approval from its home regulator, Bank Negara Malaysia, as well as the Hong Kong Monetary Authority, to launch an Islamic banking service in Hong Kong, it said.
'The first transaction under the newly launched Islamic banking 'window' is expected to be a Commodity Murabahah Deposit (CMD) of about US$100 million once the final agreement has been signed,' a source said.
Islamic law bans investment in industries involved in casinos, tobacco, alcohol or pork-related business. It also prohibits investors from receiving interest although it allows profit-sharing.
CMD is the closest equivalent to a certificate of deposit in conventional banking.
Murabahah means cost plus mark-up, so depositors get a return for a deposit period usually of three or six months through an arrangement of buying and selling transaction for the financing of an asset, instead of receiving interests.
'To have an Islamic banking service here will make Islamic investors more comfortable about using Hong Kong as a platform to invest both here and on the mainland,' said the source.
One of the conditions of operating an Islamic banking window was that the bank should have a segregated account for Islamic business.
Hong Leong Bank expects that about 70 per cent of business it will conduct through its Hong Kong Islamic banking window will come from overseas Islamic corporates and  the rest   from local Muslims.
The Hong Kong Monetary Authority said it welcomed any initiative in the market which could facilitate the development of Islamic finance in Hong Kong, but declined to comment on matters involving individual banks.
Islamic finance has become a hot topic in the city since Chief Executive Donald Tsang Yam-kuen's policy address last October in which he unveiled plans to target investments from wealthy Middle Eastern investors.
Since then,  Hang Seng Bank has issued an Islamic index fund that invests in mainland stocks which are sharia-compliant.
And the Airport Authority  plans to launch Hong Kong's first Islamic bonds in the current quarter once the tax issue is worked out.
Raymond So Wai-man, associate dean of business administration at Chinese University, expected that the scale of business transacted through Hong Leong Bank's Islamic banking window in Hong Kong might not be very big.
However, its niche of leveraging its parent bank's Islamic banking business experience and Hong Kong's financial centre status would attract Islamic investors.
'There will be more banks launching similar services in Hong Kong if Hong Leong's initiative proves a success,' said Mr So. 'It will also facilitate the development of Hong Kong as an Islamic finance centre.'



Hong Leong launches  Islamic banking service