| KUALA LUMPUR/DUBAI, April 15
KUALA LUMPUR/DUBAI, April 15 Malaysia is
promoting overseas investment by its takaful firms(Islamic
insurers) as it seeks to internationalise its Islamic finance
industry, but a lack of expertise and low risk appetite are
likely to slow the drive.
The takaful firms currently invest little abroad; a shift
from the safety of local assets to better-yielding instruments
abroad could boost their profits while increasing demand for
sukuk (Islamic bonds) from the Gulf.
Malaysia's takaful firms are already major investors in
domestically issued sukuk, holding over 60 percent of their 19
billion ringgit ($6.1 billion) of assets in domestic private and
government debt securities as of December 2012, according to
central bank data. Assets were up 12.4 percent from a year ago.
To encourage cross-border Islamic business, the Malaysian
government said last month that takaful operators would be
allowed to invest abroad without limit, lifting a requirement
for them to hold at least 80 percent of assets locally.
But currently, firms are far below the old limit on foreign
investment, suggesting it was not the rules but their own
inclinations that curtailed their overseas activities. In some
cases the firms have no foreign exposure at all.
"We adopt a prudent approach when considering overseas
investments and the appetite for Gulf sukuk is fairly moderate,"
said Ahmad Rizlan Azman, chief executive of Etiqa Takaful,
Malaysia's largest takaful operator.
The domestic focus is partly due to ample supplies of sukuk
in Malaysia; last year the local market saw $103 billion worth
of sukuk issued, according to estimates from Zawya, a Thomson
"Most of the sukuk issuances (globally) last year were from
Malaysia, including some by Gulf companies. If this trend
continues, we do not expect significant liquidity to move to the
Gulf," said Azman.
Another obstacle to internationalisation is the meagre
experience of some Malaysian takaful firms; four were set up in
the last four years, said Mohd Faruk Abdul Karim, head of the
investment department at MAA Takaful, part of listed MAA Group
Industry concentration aggravates the problem, with the top
three operators holding roughly 90 percent of assets, according
to Reuters analysis of the industry's financials. There are a
total of 12 firms.
Market leader Etiqa Takaful held 9.5 billion ringgit as of
June 2012, approximately half of industry assets, leaving other
firms struggling for scale. Five other firms which publicly
reported financials had assets below 2 billion ringgit each.
Etiqa Takaful currently allocates roughly 2.5 percent of
assets under management to foreign sukuk, while other firms are
believed to have low overseas allocations as well, Azman said.
Dependence on local assets has come at a price, with many
takaful firms missing their target returns, said the financial
controller of another Malaysian takaful operator, who declined
to be named because of the sensitive nature of the issue.
"There is a lack of creativity compared to conventional
insurers, because the conventional side is a developed market
with more intense competition and more pressure to innovate."
Several firms have been suffering losses or shrinking
pofits. Great Eastern Takaful, which held 183.8 million ringgit
in assets as of December 2012, posted a 15.2 million ringgit
loss in 2012 and a 19.1 million ringgit loss a year earlier.
Etiqa posted a net profit of 9.6 million ringgit in the
first half of 2012, but that was down from 109.6 million ringgit
a year earlier, according to company financials.
Bucking the trend is Takaful Malaysia, the
second-largest takaful firm in the country and majority-owned by
BIMB Holdings. It posted a 100.1 million ringgit group
profit in 2012, up from 76.4 million in 2011.
In September, the firm said it was preparing to set up a
wholly owned subsidiary in Labuan, Malaysia's offshore centre,
for the purpose of investing in British real estate. But for the
time being at least, such initiatives will be the exception
rather than the rule.
"I don't think they have the expertise and they are not
known to be risk takers nor sophisticated investors. They will
stay with safe local assets and declare peanut returns," said
Mahadzir Ahmad, Islamic finance consultant at Kuala Lumpur-
based Hei Tech Padu, an information technology consultancy.
"Of the 12 operators we have, not all are offering
unit-linked products, and for those who do, I have not come
across anyone offering a foreign asset class," Ahmad said.
(Editing by Andrew Torchia)