Asset managers eyeing fast-growing Islamic banking in Singapore

Asset managers eyeing fast-growing Islamic banking in Singapore

Amid the push to strengthen Singapore as a financial hub, private banking saw strong growth here in 2007. That was partly due to the rising number of high net worth individuals in the region.

The nouveau riche aside, asset managers are also eyeing the fast-growing
multi-billion-dollar Islamic banking sector.

The “US sub-prime credit crisis” may well be the most commonly bandied-about term in the markets in 2007. But other key trends in Singapore – in mergers and acquisitions (M&A), private banking and Islamic banking – have not gone unnoticed.

PricewaterhouseCoopers Singapore’s Asia financial services leader, Dominic Nixon, said: “2007 is going to be remembered primarily for the credit crunch and the liquidity crisis that followed that, along with the volatility that took place within all the markets, particularly in Asia.

“2007 will also be remembered as M&A activity continuing in financial services, growth of Asian banks and the development of the wealth management sector as the whole population in Asia and Singapore gets more sophisticated.”

Analysts said emerging markets in Asia have continued to attract foreign funds and thrived, despite tighter credit.

Mr Nixon said: “The liquidity and credit crunch will affect some short-term issues, but there are still a lot of emerging economies here – Vietnam, Taiwan, India, China.

“There will be consolidation taking place in those countries. There will be people who want to invest in those countries and they want to do it inorganically, buy assets in those countries as well. M&A activity won’t fall off, because Asia is exciting and people want to be a part of that.”

Private bankers have flocked to Asia, including Singapore, to tap into the rising numbers of the new rich.

Standard Chartered Private Bank’s global head for sales and business development, Rajesh Malkini, said: “The rate of growth in this part of the world is higher, at a little over 9 percent as compared to other parts of world…

“Singapore and India have added significant numbers of high net worth individuals over the last couple of years, more so in 2007. It made a lot of sense for us to locate our private banking headquarters in Singapore… proximity to growth markets in Asia and Mideast.”

Industry players say Singapore’s stability and infrastructure has even attracted money intended for North Asia.

More funds may be headed this way as the city-state eyes a bigger role in the fast-growing Islamic banking market, said to be worth at least US$500 billion.

Earlier this year, DBS joined hands with Middle Eastern investors to set up Singapore’s very first Islamic bank.

Vince Cook, CEO of The Islamic Bank of Asia, said that with the combined reserves of the Gulf Cooperation Council, greater than that of China, the Islamic banking market can easily grow to one trillion dollars in the next few years.

“The combined free reserves of the GCC countries are actually greater than those in China. While everyone focuses on China as a huge prize, the Gulf is very interesting too. And with oil prices staying at these levels, we’ll see that continue for some time,” he said.

The Islamic Bank of Asia already plans to grow its presence in the Gulf.

Mr Cook said: “We’re still at a relatively early stage of growth of the industry. What’s happening is the players are more engaged in developing the market than fighting each other for market share.

“The first thing we have to do is to get a clear view of our geographical priorities, like where do we need to be to get close to our customers. The early parts of the new year will see us spending lots of time sorting out our first office overseas in Bahrain.”

And even before that is open, the Singapore bank already has plans for a third office elsewhere.

As the financial industry in Singapore gears up for an aggressive 2008, players are pausing to give the government due credit for minimizing operational risks.

PwC Singapore’s Mr Nixon said: “Singapore needs to continue doing what it has already been doing – developing a robust infrastructure with a cost base to attract players to the region to operate their hubs. That’s always been Singapore’s key strength. Islamic banking is a good example of creating the right environment for people to operate in.”

Assets managed by fund managers based in Singapore grew by 24 percent in 2006 to reach S$891 billion.

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