Bright prospects for Islamic banking

by **Cals** Mon 17 Mar 2014, 12:42

Business & Markets 2014

Written by Shalini Kumar of theedgemalaysia.com

Monday, 17 March 2014 09:51

KUALA LUMPUR: The outlook for Islamic banking in Malaysia remains bright, with double digit growth seen this year, said AmIslamic Bank Bhd managing director and chief executive officer Datuk Mahdi Murad.

“The [Islamic banking] industry growth target [in Malaysia] is to reach a 40% share [of the overall banking industry] by 2020. I think by 2015, Islamic banking will have a market share of about 30%, which is doable, since our capital market is strong,” he told reporters after the bank’s business zakat presentation last Friday.

He said some of the drivers of growth in Islamic banking include expanding customer base and sukuk issuance.

“The Islamic finance industry is still [a] rather small [component of the global financial market], with a value of about US$1 trillion (RM3.28 trillion). Moving forward, we have the capability to reach about US$2 trillion in value because the base is still low,” said Mahdi.

“Even in terms of capital market, there is a lot of growth that will come from sukuk issuance,” he added.

In its annual report 2013, the Securities Commission Malaysia said the Islamic capital market grew by 8.8% to RM1.5 trillion, with syariah-compliant assets representing 56% of the overall capital market.

Malaysia maintained its role as the world’s largest sukuk market, accounting for 69% of global sukuk issuances in 2013.

Mahdi said government incentives have been helping to drive demand for Islamic finance products in the country.

“There is still a 20% discount on stamp duty for any Islamic finance facility that consumers subscribe to.

“In addition, any income generated from non-ringgit-denominated facilities is tax free. So there are incentives which make people push for [Islamic finance] products,” he said.

In a report released last Friday, the Malaysia International Islamic Finance Centre said a strong projected gross domestic product growth in Asean is “highly beneficial for further development of Islamic finance in the region”.

Last year, Islamic banking accounted for US$189.4 billion or 49% of the total Islamic finance assets; sukuk (US$177.2 billion or 45%), Islamic funds assets under management (US$18.2 billion or 5%) and takaful (US$3.5 billion or 1%), it added.

Meanwhile, Mahdi said AmIslamic Bank is developing new products such as its commodity murabahah term deposit, and variations on existing products in efforts to balance its portfolio mix.

“Currently, our mix is 60:40 for retail [banking] and non-retail respectively. For 2015, we hope to have a 55:45 mix, and in a few years, a balanced 50:50 portfolio,” he said.

This article first appeared in The Edge Financial Daily, on March 17, 2014.