KUALA LUMPUR: The number of syariah-compliant stocks on the local bourse can be increased by creating a separate listing of Islamic shares (i-shares) for banking groups with sizeable Islamic finance activities, said Permodalan Nasional Bhd (PNB) chairman Tan Sri Abdul Wahid Omar.

“What if Malaysia can create a separate listing of Islamic or i-shares from banking groups that derive a portion of their profits from Islamic finance?” the former banker said in his keynote speech at the International Islamic Fund and Wealth Management Forum organised by the International Islamic University Malaysia yesterday.

“For example, up to 25% of Malayan Banking Bhd’s (Maybank) profit is derived from Islamic finance. And since Maybank Islamic Bank Bhd is a wholly-owned subsidiary and an integral part of Maybank, we can designate, for example, 20% of Maybank shares as ‘Islamic shares’ via some ring-fencing arrangements,” he said.

Based on Maybank’s market capitalisation of RM97 billion, Abdul Wahid said the separate listing of i-shares will create a new class of syariah-compliant investment instruments worth RM19 billion.

“The same principles can be applied to CIMB Group Holdings Bhd and RHB Bank Bhd, which have sizeable Islamic finance activities within them,” he added, noting that this will attract more funds to subscribe for the i-shares.

The former minister in charge of economic planning said the separate listing of i-shares is one of his three suggestions to boost the country’s Islamic capital market, noting that the financial sector has the least syariah-compliant listed securities at 6% of the total market capitalisation of financial counters quoted on Bursa Malaysia.

“There are only two listed syariah-compliant financial counters (BIMB Holdings Bhd and Syarikat Takaful Malaysia Bhd) out of 33 listed securities in the financial sector,” he noted. “In reality, it is almost impossible to provide competitive returns to society if the government-linked investment companies have to avoid investing in the financial sector.”

Abdul Wahid said his two other proposals for the government to implement are the listing of syariah-compliant development financial institutions such as Bank Simpanan Nasional Bhd and Bank Kerjasama Rakyat Malaysia Bhd (Bank Rakyat), and the formation of a second listed Islamic universal banking group, apart from the existing BIMB Holdings Bhd, the banking subsidiary of pilgrim fund Lembaga Tabung Haji.

“What about forming a second listed Islamic universal banking group, [which could be anchored by] Malaysia Building Society Bhd, Bank Muamalat Malaysia Bhd, Malaysian Industrial Development Finance Bhd or one of the larger foreign-owned Islamic banks?” Abdul Wahid asked.

In an immediate response, Aberdeen Asset Management Sdn Bhd’s chief executive officer, Gerald Ambrose, told The Edge Financial Daily that investors may look to invest in development financial institutions, “if the valuation is right”.

“It all depends on the valuation, and the demand and supply as the share price is the function of that. People see things like Bank Perusahaan Kecil & Sederhana Malaysia Bhd (SME Bank) and Bank Pembangunan Malaysia Bhd as not coming under the so-called strict lending procedures.”

This, said Ambrose, will improve development financial institutions’ transparency, “separating the wheat from the chaff, as the financial books will be opened for the world to read.”

On the country’s equities market, Ambrose said Malaysian equities have appeared “dull and expensive”, given that the Employees Provident Fund (EPF) is too active in the market.

“Last year, EPF had net subscription of RM21 billion, that works out to be RM1.75 billion a month, and that has boiled up the market in recent times, causing ‘over-valuation’ of the blue chips,” he said, noting that there could still be upside for the FBM KLCI to reach the 1,800 points mark.

Originally published on www.theedgemarkets.com