After breakthrough Islamic issuance, Al Rayan Bank eyes more RMBS in UK

21/02/2018 08:08 AST

Al Rayan Bank is planning more securitisations backed by Shariah-compliant loans, after recently selling the UK's first deal tied to Islamic-style home purchase plans.

The bank expects to offer another deal late next year, Treasurer Amir Firdaus said in a phone interview. It may use a different residential-mortgage backed securitisation structure, and sell buy-to-let plans as well as home financing.

"If the price is still right, our strategy is to return to the RMBS market," Firdaus said. "There is a huge pent-up demand for quality RMBS paper." Al Rayan, which boosted its asset book by about a quarter in a year, cracked open the RMBS market for Islamic lenders last week by selling the £250mn ($352mn) Tolkien Funding Sukuk No 1 deal.

The Birmingham, England-based bank lured investors unfamiliar with Shariah financing by offering a margin of 80 basis points above three-month Libor, a premium to other prime RMBS sold in the UK this year.

"There are some special risks connected to this transaction but spread levels are above what you'd normally get, which is attractive to investors," said Holger Kapitza, a credit strategy and structured-credit analyst at UniCredit SpA. "I expect this deal will attract other originators to the market."

Overall RMBS sales may also pick up this year as the Bank of England closes its Term Funding Scheme this month. The end of the programme shuts off a source of cheap funding for banks, which may force them to resume selling more asset-backed securities, Firdaus said.

If RMBS pricing isn't attractive in future, Al Rayan could look at alternatives such as covered bonds or wholesale funding, he said. The Tolkien sale drew more than £385mn of orders, surpassing one and a half times the deal's size. UK investors bought 97%. The largest investor group was asset managers with 67%, ahead of banks with 28%.

Gulf Times