Barclays Capital will focus on growing its liquidity management and risk management businesses as the Islamic bond market continues to struggle because of global economic worries, its head of Islamic products said.
The euro zone debt crisis and a lacklustre economic outlook in the United States have created more risk aversion among clients, creating opportunities to expand liquidity and risk management offerings, said Dominic Selwood.
"In this year and the coming 12 months, I think it's about shining torches on places where people haven't been looking but are truly critical, like liquidity management, risk management, like the hedging products," he said.
Barclays will launch an Islamic structured notes programme in the near future, Selwood said, declining to give an exact time frame for the offering.
"It will be a significant milestone for Barclays," he said. "It's been a while since the market has had a structured note programme. It will be more up-to-date in terms of sharia aims and sharia technology."
An Islamic structured note is a derivative with value attached to the underlying value of assets, such as a basket of commodities or an index, and provides a return to investors as well as capital protection in some cases. A programme provides standardised documentation for the product.
Barclays will also expand its Islamic liquidity management offerings, such as repurchase agreements (repos), to markets such as Africa where Islamic finance is expected to grow.
A lack of liquidity management tools is seen as one of the key challenges for the Islamic finance industry; the religion's ban on interest rules out most interbank tools. Repos allow banks to grant extra funds to lend or buy assets, thereby boosting liquidity.
LACKLUSTRE SUKUK MARKET
Selwood said the strengthened focus on liquidity management came amid lacklustre activity in Islamic bonds, or sukuk.
"We're not focused right now on leading the high-profile sukuk deals, that's not where the day-to-day work is for Islamic needs," he said. "We're still there for sukuk when it comes back, and when the market begins to look more favourable for issuers and investors."
Selwood said sukuk pricing remained difficult in the current environment, causing many potential issuers to sit on the sidelines until there is more clarity or more benchmark issues come to market. He added that the market was unlikely to see a recovery this year.
Selwood joined the company in February, after Barclays' former head of global Islamic finance operations, Harris Irfan, stepped down in January. Irfan's departure was seen by some in the industry as an effort for Barclays to shift focus away from Islamic finance towards its more profitable core businesses.
Barclays obtained a licence to open an official Islamic window, or branch, at the Dubai International Financial Centre in September, allowing the bank to handle regional Islamic business out of Dubai.
"We want to demonstrate that Barclays has a firm commitment to (Islamic) business and there is no stronger way of doing it than a licence."