(Sukuk.net - Arab News) The oil-rich sultanate of brunei Darussalam entered the Islamic finance sector around 1993. But despite the fact that it has only two major Islamic banks, Bank Islam brunei Darussalam (BIBD) and TAIB, and three Takaful (Islamic Insurance companies), the Islamic banking sector accounts for an encouraging 40 percent of the total banking market in the country. This is probably the largest market penetration of Islamic banking in any single country in the world. Here Javed Ahmad, acting managing director, Bank Islam brunei Darussalam (BIBD), formerly with IICG (Gulf) and HSBC Amanah, and seconded from Fajr Capital, discusses the state of the Islamic banking market in brunei and the prospects and challenges that lie ahead.

What is your assessment of BIBD's current involvement in Islamic finance?

BIBD has a full-fledged banking license in brunei. It's main focus is retail banking services. It has about 27 percent of the market share of the total banking market in brunei. The total banking market in brunei is about $12 billion, of which about $5 billion or 40 percent of the market is Islamic. Considering that brunei started in the Islamic banking sector a decade after Malaysia, this is not a bad achievement. In fact we have a bigger Islamic banking market penetration than Malaysia.

This is a very high market share compared to most countries including Malaysia?

Yes, it is primarily as a result of the merger between Islamic Bank of brunei and the Islamic Development Bank of brunei in 2006 into this new entity BIBD; and also because of our corporate banking activities, which is the largest in the market. But even here, although we are the largest provider of corporate finance, the potential business in the country is even bigger. We are keen to broaden the scope of our activities into investment banking and private equity over the next few years. The idea being that a financial institution such as ours should be a catalyst for economic growth in the country, and we want to look at good sensible business ideas coming into brunei and thus to expand our business.

What is the capital structure of BIBD?

BIBD has a capital of 900 million brunei dollars ($650 million). This is a decent sized capital base and we are very highly capitalized. Our capital adequacy is around 20 percent. Effectively, if we wanted to we could go and expand the business based on the capital we have.

Can you expand on the share ownership structure of BIBD?

About 60 percent of the shares are held by the brunei Ministry of Finance. Another 25 percent of the equity is held by The Sultan of brunei's Charitable Foundation. Some 6 percent of the equity is owned by Mizuho Bank of Japan, which has been in brunei historically for the last quarter of a century. The remaining 9 percent of the shares are held by truly retail investors in brunei totaling about 6,000 shareholders.

brunei itself is not a big market. So how do you position BIBD especially in terms of cross-border regional activities?

Our activities have traditionally been to gather deposits and to provide financing. We are in the process of going through a major business re-focusing exercise. The focus will not be merely on transactions but also to get closer to our customers and offer them the appropriate advice and a wider range of activities. As such, we want to be bank that provides them with their home financing needs; with their investment requirements and so on. The aim is to help change the financial culture in brunei from a borrowing or debt culture to a savings culture.

What about capital markets products and potential especially Islamic equity funds and the issuance of Sukuk?

We have a Shariah-compliant ASEAN Fund. But we want to provide the full spectrum of investment products — the "best of breed" products. We will come up with the ideas and launch these funds, but will get an external third party fund manager who will provide the asset management capability.

What are the cross-border ambitions of BIBD?

We do invest internationally, for instance into commodity Murabaha syndications; Sukuk subscriptions and in equities markets. We are also interested in decent-sized buyouts not necessarily in terms of being a lead but being a participant. We do have quite a high level of liquidity and that liquidity gets invested outside purely because we do have fairly limited opportunities domestically. IBB Takaful and IBD Takaful are merging soon to create a decent size Takaful company which will explore opportunities both in the domestic and regional markets.

In which sectors in brunei do you see opportunities for growth in your business?

Most of the opportunities in brunei in terms of financing the corporate sector are in the oil and gas industry. Not only in terms of the major players but also a huge opportunity serving the companies associated with the oil and gas industry. The other is the construction sector. But the sector in which we have the largest exposure is the transport industry.

By Mushtak Parker
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