KUALA LUMPUR -- Malaysia's Islamic banking system enjoyed another bumper year in 2004 with total assets of the sector increasing to RM94.6 billion -- 10.5 percent of the total assets of the banking system. The market share of Islamic banking deposits and financing, says Bank Negara Malaysia, the central bank, has increased to 11.2 percent and 11.3 percent respectively for the year ending Dec. 31, 2004.
The Malaysian Islamic banking sector is on course for Bank Negara's target for the sector to reach a market share of 20 percent by the year 2010. Latest figures from the central bank suggest that the Malaysian Islamic banking sector has been growing rapidly over the last five years, averaging 19 percent per annum.
This is in line with sector growth figures often quoted for the global Islamic finance industry. Malaysian data is backed by empirical research, transparency and best practice reporting and disclosure standards for the sector. It is almost certain that the Malaysian figure has been extrapolated by some bankers and analysts to conjure up a growth dynamic for the global Islamic banking sector.
A major reason why Malaysia's liberalization of the Islamic banking sector was brought forward from 2007 to 2004, says Bank Negara, is "the rapid development and steady performance of the Islamic banking industry over the years." Bank Negara has already approved Islamic banking licenses for the RHB and Hong Leong Bank -- both of which have recently launched their dedicated stand-alone Islamic banks in Kuala Lumpur. The Commerce Tijari Group is also about to launch its stand-alone Islamic bank. Two further Islamic banking licenses are in the offing for local groups Affin and AMBB.
The Malaysian central bank last also approved similar licenses for Kuwait Finance House (KFH); Al-Rajhi Banking and Investment Corporation and for a consortium bank led by Rusd Investment Bank, Qatar Islamic Bank and Global Investment House. KFH was due to open its bank in Kuala Lumpur in June, but this has been postponed till September this year. "The infrastructure of the bank," says Salman Yunus, executive director of KFH (Malaysia), "is in place. We are in the process of finalizing the senior management appointments."
Bank Negara Governor Dr. Zeti Akhtar Aziz disagrees that the Malaysian Islamic banking sector with 10 dedicated licenses, is expanding too rapidly and that the central bank has been over-concentrating on this sector at the expense of further liberalization in the conventional sector. She explained that Malaysia opened up its financial services sector to the global banking majors more than a decade ago, with most of them having operations in the country.
She confirmed that there has been much interest in Islamic banking from other countries. China has joined the Islamic Financial Services Board as an associate member, and Nigeria has become the 56th member state of the Islamic Development Bank. Malaysia is keen that the sector should aim for the same 20 percent market share target for global Islamic banking. In 2004, the Malaysian Islamic banking system continued to show strong growth in tandem with the growth in the economy. The risk-weighted capital ratio (RWCR) and core capital ratio of the sector in line with Basel II requirements were sustained above 12 percent and 10 percent respectively. The RWCR for the two dedicated Islamic banks, Bank Islam Malaysia and Bank Muamalat, averaged 12.5 percent.
The total capital base of the sector increased from RM6.8 billion in 2003 to RM7.8 billion in 2004; the total assets of the Islamic banking system amounted to RM94.6 billion -- up 15 percent on the year; similarly risk-weighted assets of the sector increased by 20.4 percent to RM62.5 billion for the same period. Total Islamic banking financing amounted to RM57.9 billion -- some 61.2 percent of total Islamic banking assets. Asset quality of the sector too improved in 2004 with gross and net non-performing loans (NPL) ratios decreasing from 8.5 percent to 8.1 percent and from 5.5 percent to 5.3 percent respectively.
Dr. Zeti also confirmed that Malaysia is soon to introduce a deposit insurance scheme for the banking sector. The scheme will have two components -- a conventional scheme and a Shariah-compliant scheme. "We anticipate that the bill for the deposit insurance scheme will be tabled in the Dewan Rakyat (the Malaysian Parliament) during this session in July. It is quite important to develop a uniform platform and to look at the experience of other countries," she added.
The development of a global Islamic banking system is also high on the agenda of Malaysian Prime Minister Abdullah Badawi. At the recent 30th anniversary board of governors' meeting of the IDB in Kuala Lumpur, he reiterated that "Muslim countries must work together to ensure that the necessary building blocks for a successful and credible Islamic financial system are put in place."
Mushtak Parker
© Arab News 2005
