OCBC Al-Amin Bank has extended a US$175 million Islamic green term financing facility to RHB Islamic Bank on the 2nd January 2024.
This facility, a green Islamic foreign currency bank-to-bank term financing deal, represents a first in the market to take a use-of-proceeds approach in the Malaysian financial institutions space.
“At the discretion of RHB, in its capacity as a strategic partner of OCBC Al-Amin, the proceeds must be designated for environmentally friendly (green) projects aimed at the reduction of carbon emissions,” Syed Abdull Aziz Syed Kechik, CEO of OCBC Al-Amin Bank, told ISFI.
RHB Islamic will use the proceeds from the facility to provide its customers with ESG financing solutions as part of RHB Banking Group’s sustainable asset framework.
The facility embeds within it an Islamic cross-currency swap arrangement, which provides a Shariah compliant hedging mechanism that protects against currency market fluctuations. The financing facility is disbursed in US dollars, utilizing the OCBC Group’s access to the dollar market.
Elaborating on the cross-currency swap arrangement, Syed Abdull Aziz explained that in considering the potential losses that may result from currency market volatility, it is essential to safeguard against such risks with the hedging mechanism of cross-currency swaps.
According to the CEO of OCBC Al-Amin, the facility will promote the expansion of the domestic Malaysian ringgit green financing market.
The swap mechanism facilitates the conversion of US dollar proceeds to the Malaysian ringgit on the date of disbursement and converts profits in the Malaysian ringgit to the US dollar when the profit payment is due.
This financial solution, which was in development for roughly three months, is part of OCBC Al-Amin’s efforts in the sustainability and green financing space. According to Syed Abdull Aziz, financial institution-to-financial institution partnerships, such as this one, are crucial to achieving a low-carbon future.