Perhaps it is not surprising that the 9th Annual Summit of the Islamic Financial Services Board (IFSB) will be hosted by the Central Bank of Turkey (CBT) on May 16-17, 2012 in Istanbul. At the meeting of the central banks & monetary authorities of the OIC member countries which was organized by the Ankara-based SESTRIC, the statistical and research organization of the OIC, and hosted by Bank Negara Malaysia, the central bank, in Kuala Lumpur last week, Erdem Basçı, governor of the CBT, was indeed a busy man. (source)
No sooner had he signed a memorandum of understanding with Jaseem Ahmed, secretary general of the IFSB, regarding the hosting of the 9th summit, he was off to host the final press conference of the OIC meeting with host, Zeti Akhtar Aziz, governor of Bank Negara Malaysia. Indeed one of the resolutions of the final communiqué of the meeting stressed that "we can expect emerging economies to continue to contribute toward driving global economic recovery and growth. The potential role of Islamic finance in supporting this endeavor should be given special attention. In this regard we affirm our commitment to strengthen collaboration in capitalizing our growth potential."
Another sign of growing Turco-Malaysian cooperation is the revelation that the two countries are on the verge of signing a currency swap arrangement to facilitate bilateral trade. "The agreement," said Basci, "would augment economic ties to finance bilateral trade in respective local currencies of the two countries."
Malaysia already has such a currency swap arrangement in place with China amounting to RM40 billion or 80 billion renminbi; while Turkey has a similar arrangement in place with Pakistan $1 billion in equivalent local currencies of Turkish lira and Pakistani rupees. In fact, Ankara is set to sign a similar agreement with China in due course.
With Malaysia though there are several other cooperation measures in the pipeline, including the possibility of a double tax treaty and a bilateral trade agreement between the two countries.
Malaysian Islamic bankers and investors on the other hand will also point to the importance of sovereign Turkey issuing a benchmark sukuk and the country opening up its nascent asset management and investment funds market to Malaysian counterparties.
Similarly, Bursa Malaysia and the Istanbul Stock Exchange are already in negotiations to launch a mutual equity index for the two countries; and dual listings on the two exchanges. The Malaysian bourse is also keen for Turkish institutions to participate in its Bursa Siq Al Sila' commodity Murabaha trading platform which could serve as an ideal liquidity management platform for Turkish participants seeking short-term funds. Turkey can also leverage the Malaysian experience in Islamic finance which could also be the basis for cooperation and future linkages.
Turkey is the 17th largest economy in the world; it has a population of 70 million of which the average age is 29, which is the youngest in Europe; it is the 16th largest steel producer in the world; and the country averaged a GDP growth rate of 10.3 percent for the First half of 2011. The cooperation between the two countries underlines the huge potential to boost trade, investment and financial linkages. Bilateral trade last year totaled a mere $795 million, of which $656 million constituted Malaysian exports to Turkey.
The relatively modest volume of trade and investment between the two countries currently reflects the enormous opportunity for further growth. During the recent visit of Malaysian Prime Minister Mohd Najib Abdul Razak to Turkey, he and his Turkish counterpart, Prime Minister Recept Tayyip Erdogan, agreed a new target for bilateral trade between the two countries from the current $1.3 billion to $5 billion. Turkish investors and financial institutions could use Malaysia as a gateway to the Asean region, while the Malaysian financial community could use Turkey as a gateway to Central Asia and Europe.
The 9th annual summit of the IFSB in Istanbul would also be an ideal platform for Turkey to strut its stuff to the IFSB member organizations which span all the five continents of the world. Turkey for instance is emerging as a potentially major nascent sukuk origination country with Kuveyt Turk Participation Bank closing its second sukuk in two years, and a host of other issuers including Asya Bank, Albaraka Turk Participation Bank and Turkiye Finans, in which Saudi Arabia's National Commercial Bank holds a majority stake, lining up to go to the market to raise longer term financing over the next six months.
Turkey also seems to be making progress on its long-awaited sovereign sukuk issuance. Central Bank of Turkey sources confirmed to that the issuance is still very much on the agenda, although the final decision to be taken by the Treasury will depend on market conditions and timing. The sentiments at the moment are that with the neighboring euro zone countries consumed by a pernicious sovereign debt crisis, Ankara is preoccupied with the potential fallout of the crisis given that 40 per cent of Turkish exports are directed towards markets in the euro zone especially Germany.
However, the sources mentioned that there is progress in other aspects. In February, the Turkish Parliament adopted tax neutrality measures for Sukuk Al-Ijara (leasing sukuk). This is now on the verge to be extended to other types of Sukuk structures which will give Turkish issuers more flexibility and choice in the use of structures to raise longer-term funds.
As for the IFSB annual summit, according to the Board, the annual IFSB summits aim to bring together an experienced international group of chairpersons and speakers, attracting participants from all sectors of the financial services industry across the globe. Participants of the previous Summits have included key players of the Islamic financial services industry, especially members of the IFSB from among regulatory and supervisory authorities, international inter-governmental organizations and market players.
The Council of the IFSB meeting in Kuala Lumpur last week appointed Rasheed Mohammed Al-Maraj, governor of the Central Bank of Bahrain as its chairman and Sheikh Abdullah Saoud Al-Thani, the governor of the Qatar Central Bank, as its deputy chairman for the year 2012.
In Kuala Lumpur last week, the IFSB also issued two new exposure drafts for a three-month public consultation. The exposure drafts are guiding principles on liquidity risk management and on stress testing for institutions offering Islamic financial services (IIFS):
Exposure draft 12 - guiding principles on liquidity risk management, endeavors to delineate a set of guiding principles for the robust management of liquidity risk by IIFS and its vigorous supervision and monitoring by supervisory authorities, taking into consideration the specificities of IIFS and complementing relevant existing and emerging international standards and best practices.
Exposure draft 13 - guiding principles on stress testing, aims to provide a set of guiding principles intended to complement the existing international stress testing framework taking into consideration the specificities of IIFS as well as the lessons learned from the financial crisis so as to contribute to the soundness and stability of the IIFS particularly, and Islamic financial services industry as a whole.
The board also admitted seven organizations as new members. They include International Islamic Liquidity Management Corporation (IILM) and the National Bank of Kazakhstan as associate members; and Ahmed Zakari & Co. (chartered accountants), Nigeria; the Central Bank of Oman; Towers Watson, Singapore; Islamic Bank of Thailand; and Bank of London and Middle East, United Kingdom as observers.
The 189 members of the IFSB comprise 53 supervisory and regulatory authorities from the banking, capital markets and Islamic insurance (Takaful) sectors in 42 jurisdictions, as well as eight international inter-governmental organizations, and 128 market players (financial institutions, professional firms and industry associations).
