MUFG sets up RM20bil Islamic securitisation programme in Malaysia

People walk past a branch of Mitsubishi UFJ Financial Group's bank of Tokyo-Mitsubishi UFJ (MUFG) in Tokyo, Japan, May 16, 2016. REUTERS/Thomas Peter

TOKYO: Mitsubishi UFJ Financial Group (MUFG) has set up a RM20bil Islamic securitisation programme in Malaysia, a bank official told Reuters, as Japan’s largest lender strives to become a key player in Islamic finance.

As the first deal under the programme, MUFG said it was arranging the issuance of RM900mil in Islamic bonds, or sukuk, backed by auto loans held by Malaysia’s CIMB Islamic Bank, a unit of Malaysia’s second-largest bank CIMB Group Holdings Bhd.

It is Malaysia’s first syariah-compliant auto loan securitisation, Masumi Hamahira, adviser at MUFG’s Malaysian unit, said in an interview.

“We expect strong demand for Islamic securitisation from both originators and investors,” Hamahira said.

He said it offered a means of fund-raising for Islamic auto loan providers, who are expanding their businesses in response to the rise in car ownership in Malaysia.

Meanwhile, potential demand from investors for syariah-compliant assets will likely expand as Malaysia’s state pension fund is planning to give its members an Islamic investment option, a move likely to be followed by other pension funds. CIMB officials were not immediately available for comment on the securitisation deal.

Islamic finance, which follow religious principles such as bans on interest and monetary speculation, has expanded over the past decade on the back of strong economic growth in its core markets, the Gulf and South-East Asia.

Sukuk issuance from key markets in the first half of 2016 rose 11% from a year earlier, according to Fitch Ratings.

Malaysia has one of the world’s largest Islamic finance sectors and authorities are keen to develop it further.

MUFG and rival Japanese banks, which have been ramping up efforts to diversify beyond their domestic loans business, are now trying to carve out a position in Islamic finance.

In 2014, MUFG issued the world’s first yen-denominated sukuk. - Reuters