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Banks to tap oil money via Islamic finance
Writer : Sender
Jun 03, 2008
Korean regulators are seeking to revise laws to help local banks and brokerages tap the fast-growing Islamic financial market.
The Financial Services Commission said yesterday it planned to develop ways to allow local firms to trade Islamic financial products by next month.
It will hold a seminar on Islamic finance with the Islamic Financial Services Board, a Kuala Lumpur-based standard-setting organization, in Seoul next January.
Korean companies have been effectively banned from advancing into the capital market in the Middle East because of the Islamic regulatory regime.
The Islamic law prohibits interest payments in financial transactions, so debtors pay quasi-interest in the form of dividends or commissions to lenders instead.
Middle Eastern countries also often forbid usury and investment in businesses that sell alcohol or pork.
The complex rules conflict with Korean financial and accounting standards, making it difficult for Korean banks to tap Islamic markets.
But local players have been eager to advance into the Islamic capital market chasing the region's ample petrodollars.
Cash has been flooding into the oil-producing countries in recent years, thanks to the skyrocketing oil prices.
Seven major Middle East states, including Iran, Iraq and Kuwait, were estimated to hold nearly $480 billion in foreign currency reserves last year, more than triple the 2001 figure.
Experts largely expect an increase in their foreign currency reserves in the coming years due to the increasing price of oil.
If the FSC reshapes the regulations, industry watchers said local banks and brokerages would be able to underwrite bonds, offer financial advice and attract more petrodollars into the Seoul money market.
They particularly hoped that local financiers would be able to raise capital through issuing sukuk in the Middle East capital market.
Sukuk is a kind of the Islamic bond which pays dividends instead of interest, in compliance with Islamic law.
Over $60 billion in active sukuks had been floated as of the end of 2007, compared to $10 billion in 2005.
Around $34 billion worth of bonds was issued last year alone.
(Source: The Korea Herald)
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