ABU DHABI: National Bank of Abu Dhabi (NBAD) will launch a sharia-compliant repo product in March to encourage secondary market trading and is in talks with two unnamed counterparties for the same, an official said on Sunday.
The Abu Dhabi lender expects the Islamic repo market in the Middle East and North Africa (MENA) region to be worth about $2 billion, said Sameh Al Qubaisi, general manager for NBAD’s institutional and corporate coverage group.
"We have finished the documentation for the repo. The legal side is also done. It will be the first Islamic repo," Qubaisi told reporters on the sidelines of a conference.
The shortage of sharia-compliant liquidity instruments is regarded as a major handicap of Islamic banks, as the religion’s ban on interest rules out most interbank money market tools. Repurchase agreements, also termed repos, allow banks to grant extra funds to lend or buy assets, thereby boosting liquidity.
Activity in the Islamic bonds market has been muted after several high-profile defaults in the last two years.
Dubai’s state-owned property firm Nakheel repaid a $4.1 billion sukuk in 2009 after a $10 billion bailout from oil-rich neighbor Abu Dhabi.
"After the Nakheel issue, the doubts in the sukuk market have been the talk of the town," Qubaisi said.
Separately, the bank is also in talks to create an Islamic Real Estate Investment Trust (REIT), he said without providing more details.
The top UAE lender wants to set up an Islamic banking business in Malaysia after its conventional bank unit starts operations there in the third-quarter, its chief executive said earlier in the day.
"We have a conventional license. If the authorities allow us, we would like to have … an Islamic license," Michael Tomalin told reporters. He did not give more details.
The lender, largest by market value in the United Arab Emirates, also plans to expand operations in the Middle East and is awaiting banking licenses in Lebanon and Syria.
NBAD plans to have 50 branches in Egypt by 2014 from 30 branches currently, he said. Its shares rose 1.8 percent on the Abu Dhabi bourse as at 0700 GMT. –Additional reporting by Stanley Carvalho