Monday, Nov 26, 2007

By Karen Lane

Of DOW JONES NEWSWIRES

KUALA LUMPUR (Dow Jones)--Hong Leong Islamic Bank should see pretax profit growth in the mid 20% area in this financial year, in large part on the back of growth in its investment and wholesale banking business, a top executive at the bank said.

The bank - incorporated as a stand-alone Shariah compliant in March 2005 - is looking to transform itself into a bank capable of offering customized solutions to corporate clients instead of relying on retail customers, the bank's managing director Khalid Bhaimia told Dow Jones Newswires in a recent interview.

"We have gone primarily into the high-end institutional side," he said. "The market is more receptive than ever before to innovative solutions."

Hong Leong Islamic Bank's leading earnings stream now is personal financing.

The bank, a wholly owned unit of Hong Leong Bank Bhd., Malaysia's sixth largest lender by assets, made MYR21 million in pretax profit in its first financial quarter ended Sept. 30. That was up 9% on year.

Key targets for the new business will be institutions seeking financing for capital acquisitions. "Malaysia going into this year and going forward has a lot of infrastructure needs," he said.

Additionally, many existing obligors are looking to refinance to get cheaper funding or in favor of Shariah financing of structures that are more widely accepted across the Muslim investing world.

"If you did a sukuk four years ago and you are half way through, you can probably do a better job (cost wise)," he said.

One problem he noted, though, is that many sukuk sold in the past don't have prepayment options which makes refinancing a tough job.

Mostly, the bank will be looking to build up its domestic business rather than branch into the offshore market, even though the bank has an international currency business unit license. He noted that was a particularly competitive part of the market where both international and Malaysian banks are looking to grab a piece of the action.

Hong Leong Islamic Bank is also looking at Islamic insurance. "We are very bullish on takaful," Bhaimia said. The bank will be looking to sell insurance through its parent's 186 branches and through its business and call centers.

Hong Leong Bank has a joint venture with Tokio Marine & Nichido Fire Insurance and Hong Leong Assurance called Hong Leong Tokio Marine Takaful.

Takaful is a form of insurance that complies with Shariah, or Islamic law.

He was sanguine about the prospects for the Islamic financial markets amid the current subprime-led troubles that have unsettled the conventional markets.

"The bulk of the Islamic business here (in Malaysia) is retail so the subprime is not there," he said.

Still, an Islamic collateralized loan obligation that Hong Leong Islamic Bank has hoped to offer this year alongside CIMB Bhd, another Malaysian lender, is no longer on the table.

"The market is not receptive now," he said.

-By Karen Lane, Dow Jones Newswires; 65 6415-4043; karen.lane@dowjones.com

(END) Dow Jones Newswires

26-11-07 0326GMT