BNP Paribas, which received its Malaysian commercial banking license in June this year, is expected to launch its Islamic banking operations in the country by the end of this year as it looks to expand its Shariah compliant business in Asia Pacific.
Islamic Finance news understands that the banking group, via BNP Paribas Malaysia, is now awaiting approval for its Islamic window license. With its existing Islamic business still lagging behind its peers, could an expansion in Asia Pacific help the French banking giant boost returns from its Islamic arm?
Eye on Asia
According to its website, BNP Paribas’ Malaysian operations will serve as its Islamic finance hub for the Asia Pacific region. Its conventional business in the country offers full service local currency banking, with the Islamic division targeted to begin offering the same by October this year.
The bank is also likely to have an eye on Malaysia’s neighbors, including Muslim-majority countries such as Brunei and Indonesia, where the bank has already established a conventional presence.
Headway into Brunei and Indonesia would make strategic sense for any bank looking to increase Islamic capabilities in Asia. While Malaysia has established itself as a hub for the industry, the market is highly competitive, with local banks taking up a major share of Islamic financing transactions.
Apart from being Muslim dominated, Brunei and Indonesia have also shown an inclination toward Shariah compliant finance, while both countries have planned large industry and infrastructure spending, opening up sizable financing opportunities.
Boosting Islamic business
BNP Paribas established its global Islamic banking division, BNP Paribas Najmah, in Bahrain in 2003. The division has since closed a number of notable deals, including acting as bookrunner for Kuwait-based Mobile Telecommunications Company’s US$2.5 billion Murabahah bridge facility and as joint mandated lead arranger and bookrunner for Etihad Etisalat’s US$2.8 billion Murabahah facility.
However, the banking group may find its Islamic business still lacking in comparison to its competitors. In the year-to-date, it is ranked 10th in Dealogic’s global Sukuk bookrunner ranking, with one transaction valued at US$188 million. CIMB Group, which is ranked first, has closed 20 deals worth US$3.44 billion so far this year.
Meanwhile, BNP Paribas’s European counterparts, HSBC and Deutsche Bank, are ranked third and eighth, with 10 deals worth US$2.84 billion and two transactions amounting to US$427 million, respectively.
BNP Paribas is also ranked 10th in the year-to-date in Dealogic’s global Islamic-related loan bookrunner ranking, with one transaction valued at US$23 million, while the likes of Citigroup, HSBC, RBS and Standard Chartered have also topped its performance in this segment.
Last year, the banking group did not make the top 10 of Dealogic’s global Islamic bond bookrunner ranking, while it ranked 10th as global Islamic-related loan bookrunner with one deal valued at US$75 million.
As it stands, an expansion in the Asia Pacific region will likely provide a valuable shot in the arm for BNP Paribas’ Islamic business. On top of this, speculation is rife that the group will reshuffle its operations in Bahrain to other countries in the Middle East, creating an air of uncertainty that a bigger Asia Pacific presence could help clear up.
The banking group does not disclose segmental results for its Islamic banking business in its financials. However, according to its first half 2011 financial statement, revenue from “other countries”, under which its Bahraini and Islamic operations would be grouped, only amounted to EUR445 million (US$645.2 million) out of total group revenue of EUR22.67 billion (US$32.9 billion).
Meanwhile, despite its global presence, the French bank remains very much Europe-focused. According to its 2010 annual report, its home market contributed to three quarters of its revenue in 2010, with the region expected to continue driving most of its growth this year.
Under the banking group’s goals for 2011 as outlined in the annual report, it made no mention of its Middle East market, but noted that it will take advantage of buoyant Asia Pacific economies by “implementing targeted growth strategies” in its investment solutions and corporate and investment banking units, adding that 2011 will be a key year for the execution of those strategies.
In a further indication that its Middle East business is dwarfed by the rest of its operations, its annual report shows that its employees in the region made up a mere 1% of its 205,300-strong workforce as at the end of last year. By contrast, employees in Asia amounted to 5% of its total workforce.
Its current Asia and Oceania business also performed well in the first half of this year, with revenue increasing 17.94% to EUR1.17 billion (US$1.7 billion) from a year earlier.
With its Asia Pacific business already contributing strongly to the group, an expansion of its Islamic operations in the region could help offset its lagging Middle East division. Furthermore, the planned launch of its Islamic business in Malaysia will likely provide an effective springboard for the further growth of its Shariah compliant market in the Asia Pacific region.