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Pakistan cbank unveils 5 year plan to boost islamic finance

Feb 25 Pakistan's central bank has published a detailed five-year plan to promote Islamic finance through an array of proposed legislative changes, product incentives and instructions to market participants. The plan aims to double the branch network of Islamic banks, which now have about 1,200 branches, and increase the industry's market share to 15 percent of the banking system by 2018 from roughly 10 percent now. The document says it would create a level playing field for Islamic banks in the world's second most populous Muslim nation; their financing-to-deposit ratio would reach a level that was at least on a par with their conventional peers. The central bank said the plan would focus on improving the public's perception of the industry, and it included a detailed timetable for the gradual roll-out of initiatives."Despite strong growth momentum, the industry perception is still not very positive, largely due to limited awareness and similarities between conventional and Islamic banking products," said Saleem Ullah, director of the central bank's Islamic banking department. The regulator aims to encourage Islamic banks to not only obey industry rules but also follow the spirit of Islamic principles, such as an emphasis on transactions based on real economic activity rather than monetary speculation."Product offerings are overwhelmingly debt-based, which though they meet the minimum sharia requirements don't meet the sharia objectives of risk- and reward-sharing, and equitable and broad-based distribution of economic gains," Ullah said. As of September, Pakistan had five full-fledged Islamic banks and 14 others offering Islamic banking products; they held a combined 926 billion rupees ($8.8 billion) of assets or 9.5 percent of the total, central bank data showed. That compares with around 25 percent in the Gulf Arab region. LEGAL FRAMEWORK

The central bank intends to develop a distinct legal framework for Pakistan's Islamic banks by 2018, and to propose changes to its own charter and review other legislation to eliminate any confusion and inconsistencies. It will work with federal and state governments to provide tax neutrality for Islamic banks to limit extra product costs. The regulator will also step up adoption of guidelines from the Malaysia-based Islamic Financial Services Board and the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions, the global industry's two main standard-setting bodies. A sharia governance framework is scheduled to be released in Pakistan this year which will specify roles and responsibilities of management, scholars approving Islamic finance activities, and sharia compliance and audit officers.

Guidelines for development finance institutions to start offering Islamic banking are to be issued by 2015. An alternate resolution mechanism for resolving Islamic banking disputes is planned for 2016. An Islamic pricing benchmark for money market transactions and short-term lending would be devised by 2015, as well as guidelines for treasury products. By 2016, the central bank is to have rationalised minimum capital requirements for full-fledged banks, Islamic windows and Islamic banking subsidiaries of conventional banks. This would be complemented by a media campaign to promote the industry which was launched last year and is to be strengthened. COMPLEX The central bank's complex plan would be challenging to implement for any regulator, even in more developed economies than Pakistan. Success in all of the initiatives is not entirely under the central bank's control; it will need the cooperation of other institutions such as parliament and the finance ministry, which may be distracted by other issues.

Nevertheless, the central bank appears willing to invest considerable effort in the scheme. Last month it named a new deputy governor to focus on Islamic banking and enlisted renowned scholar Muhammad Taqi Usmani to its sharia board. Its plan addresses some challenges, such as the need to develop a short-term Islamic money market, which have dogged Islamic finance globally for years and have not been resolved by regulators in many other countries. To harmonise industry practices, Pakistan's central bank plans to review major products and issue instructions by 2016 on products' essential requirements. It will restrict certain mechanisms in Islamic banking transactions such as agency agreements, hiba ; var median = (relatedItemsTotal / 2); var $relatedContentGroupOne = $(' ul'); var $relatedContentGroupTwo = $(' ul'); $.each($relatedItems, function(k,v) { if (k + 1 = median) { $relatedContentGroupOne.append($relatedItems[k]); } else { $relatedContentGroupTwo.append($relatedItems[k]); } }); } else { $('.third-article-divide').append($('div class="related-content group-one"h3 class="related-content-title"Also In Financials/h3ul/ul/div')); $('.related-content ul').append($relatedItems); } },500); } Next In Financials Greece's NBG likely to sell its insurance unit this year -CEO SOFIA, Jan 4 National Bank of Greece (NBG) expects to sell its subsidiary National Insurance this year and plans other sales as part of its restructuring, its chief executive said on Wednesday. BRIEF-Ford Motor Credit files for notes offering * Ford Motor Credit Co LLC - files for notes offering; size not disclosed - SEC filing UPDATE 1-U.S. LIBOR breaks above 1 pct for first time since 2009 Jan 4 The rate banks charge each other to borrow dollars for three months rose above 1 percent on Wednesday for the first time since May 2009 as global interest rates extend their climb on expectations of accelerating growth and inflation. MORE FROM REUTERS window._taboola = window._taboola || []; _taboola.push({ mode: 'organic-thumbnails-a', container: 'taboola-recirc', placement: 'Below Article Thumbnails - Organic', target_type: 'mix' }); Sponsored Content @media(max-this site) { #mod-bizdev-dianomi{ height: 320px; } } From Around the Web Promoted by Taboola window._taboola = window._taboola || []; _taboola.push( { mode: 'thumbnails-3X2', container: 'taboola-below-article-thumbnails', placement: 'Below Article Thumbnails', target_type: 'mix' } ); window._taboola = window._taboola || []; _taboola.push

Rlpc first covenant lite leveraged loans to hit europe

Nov 4 The first pure European covenant-lite deal could hit Europe's leveraged loan market before the end of the year, fuelled by a lack of M&A and a surplus of liquidity which investors are eager to put to work. A number of bankers are working on covenant-lite loan packages for about four or five potential buyout deals in auction phase, including financial news provider MergerMarket, as some sponsors demand less restrictive financing options."Market conditions are very strong and there is a lot of liquidity. If there is a well-known business which is liked by institutional investors it could get a deal done on a full European covenant-lite basis. Covenant-lite should be on everyone's list to investigate," Neil Thomson, founding partner of debt advisory firm Tomorrow Partners, said. Although covenant-lite is a common feature of the US market, it has been mainly shunned by a more conservative European market as bankers and investors clung to a vast array of financial and maintenance protections. European bankers and investors have been increasingly exposed to covenant-lite financings with the emergence of a greater number of cross-border transactions and euro carve-outs of large dollar financings on deals, including German ceramics company CeramTec and global IT operations management software provider BMC Software.

With the European market becoming more used to covenant-lite, it is only a matter of time before it sees its first pure covenant-lite deal."The market has been changing over the past 12-18 months. For a decent business it is not as apparent how useful covenants are. European covenant-lite was close to heresy but now it is becoming much more widely acceptable," a head of loans distribution said.

DEAL SPECIFIC The impetus for a pure European covenant-lite deal is growing but it will only work for the right deal. A 340 million pounds-equivalent ($541.33 million) financing backing Carlyle's buyout of UK-headquartered packaging company Chesapeake was launched over the summer and initially attempted to secure a covenant-lite package, but investor pushback led to the inclusion of one leveraged covenant making the deal covenant-loose.

A covenant-loose deal includes some covenants but typically sees the removal of fixed charge and free cashflow covenants. If the covenant-lite financing packages proposed on some deals in auction phase do materialise, bankers will make sure there is enough flex language to cover themselves against possible backlash."There could be flex language in the documents in order to protect underwriters during syndication. The deal may not finish up completely covenant-lite," Thomson said. In order for covenant-lite to work, investors are looking for a well-known leveraged credit that has performed well and has a track record of deleveraging. The loan needs to be big enough so it is liquid if investors want to exit quickly on the secondary markets, but not so big that it requires a dollar portion. With a number of credit funds and new CLOs having been raised this year; repayments to the loan market as loans refinanced via the bond market; and a lack of M&A, one banker said the market had created a "perfect storm" for a pure European covenant-lite deal. ($1 = 0.6281 British pounds)

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