Islamic banks tout Ramadan discounts

Islamic banks are providing discounts and boosting advertising during the Muslim holy month of Ramadan as sales of Shariah-compliant bonds decline.

Abu Dhabi Islamic Bank, the United Arab Emirates' second- largest Shariah-compliant lender, said on Aug. 14 it will postpone payments for August to help customers meet the extra expenses associated with the holiday, marked by increased charitable donations and gift giving. Kuala Lumpur-based Bank Islam Malaysia Bhd. will contribute 0.3 percent of credit-card purchases to charity, while Karachi, Pakistan-based Burj Bank Ltd. said it was increasing its advertising budget for the month by 10 percent from a year earlier.

Islamic lenders say such marketing has bolstered their $1 trillion industry, which has been averaging growth of 15 percent a year. Ramadan promotions helped boost deposit growth for Abu Dhabi Islamic Bank by 29 percent in the third quarter of 2010 and contributed to a 5.7 percent increase in customers.

“In Ramadan, it is easier to attract people to Islamic banking,” Pervez Said, chief executive officer of Burj Bank, said in an interview from Karachi yesterday. “It is all about building our corporate image and taking advantage of the religious sentiment during the month.”

Heralded by the appearance of a crescent moon, Ramadan began on Aug. 1 and will end with the celebration of the Eid holiday at the end of the month. Around 1.6 billion Muslims worldwide refrain from food, drink and sex from dawn to dusk during Ramadan, which is marked by additional daily prayers after sunset and increased charity and exchanging of gifts. For the three-day Eid festival, Muslims often buy new clothes and hold celebrations among family and friends.

“People are more likely to spend on gifts, on social events and charity so there's an upturn in consumer spending during the period,” Khalid Howladar, a senior credit analyst at Moody's Investors Service in Dubai, said in a phone interview yesterday. “As a result, some Islamic banks offer products to capitalize on that sentiment. If an institution shows that it's part of both the religious and consumer phenomenon, it'll resonate positively with practicing Muslims.”

HSBC Amanah, the Islamic unit of HSBC Holdings Plc, distributed charity boxes to customers in the Persian Gulf, Malaysia and Indonesia to fill them with gifts for the needy, according to an Aug. 4 statement by the lender. In Indonesia, where only a small percentage of the country's more than 200 million Muslims use Shariah-compliant banks, lenders are jointly sponsoring television advertisements, said Mulya Siregar, director of Islamic banking at the central bank.

Indonesian retail sales grew 32 percent last August, the fastest pace in six months, while Malaysia's consumer-price index rose the most that year, according to government data compiled by Bloomberg.

“Ramadan's the best time to touch the religious sentiment of Muslims,” the Jakarta-based Siregar said in an interview on Aug. 8. “It's a good time to entice them to choose Islamic banks.”

There have been no new sales of dollar-denominated sukuk, debt that pays returns on assets to comply with Islam's ban on interest, this month, data compiled by Bloomberg show.

“I'm not expecting anything this month,” Zeid Ayer, who helps oversee $700 million of assets as chief investment officer at Kuala Lumpur-based CIMB-Principal Islamic Asset Management Bhd., said in an interview on Aug. 5. Sukuk sales will pick up “probably in September at the earliest,” he said.

The difference between the average yield for sukuk and the London interbank offered rate widened 33 basis points, or 0.33 percentage point, last week to 247 on Aug. 12, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index. Average yields climbed eight basis points to 3.58 percent.

Shariah-compliant bonds have returned 6.5 percent this year, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index. Debt in developing markets returned 5.8 percent, JPMorgan Chase & Co.'s EMBI Global index shows.

Indonesia is aiming to increase Islamic banking assets by 35 percent in 2011 from 100.3 trillion rupiah ($11.7 billion) at the end of last year, Bank Indonesia's Siregar said on July 8. The Shariah-compliant industry in Southeast Asia's largest economy grew 50 percent last year, compared with a 16 percent rise to 350.8 billion ringgit ($118 billion) in Malaysia, according to central bank data.

Global sales of Islamic bonds have more than doubled to $16.8 billion so far this year from the same period in 2010, according to data compiled by Bloomberg.

The yield on Malaysia's 3.928 percent dollar sukuk due June 2015 fell seven basis points to 2.28 percent yesterday, according to prices from Royal Bank of Scotland Group Plc. The difference in yields between Malaysia's sukuk and the Dubai Department of Finance's 6.396 percent note due November 2014 narrowed 15 basis points to 224, data compiled by Bloomberg show.

The Bloomberg Malaysian Sukuk Ex-MYR Index, which measures foreign-currency Islamic debt sold by companies and governments in Malaysia, rose 0.1 percent to 105.127 yesterday. The measure has climbed 6.6 percent this year.

Abu Dhabi Islamic Bank rated its 2010 “Ramadan campaign” as a success, according to a statement provided to Bloomberg on Aug. 15. “This year again, we expect customer numbers to grow strongly in the third quarter.”