MALAYSIA:
Local rating agency RAM Ratings has projected that Islamic banking assets
in Malaysia will increase to 25% of the country’s total banking system
assets by the year 2017. The estimations were made in the agency’s
Islamic Banking Bulletin released yesterday.
According to RAM, the Malaysian Islamic banking industry’s assets have
almost doubled in the last five years, accounting for over 20% of the
banking system’s assets. “RAM projects Islamic banking assets to
represent 25% of the Malaysian banking sector by 2017,” says Foo Su Yin,
CEO of RAM, in an emailed statement to Islamic Finance news. As at the end
of February 2014, industry assets stood at RM423 billion (US$131.02
billion) accounting for 21% of the banking system’s assets; five
percentage points higher than the RM220 billion (US$68.14 billion)
recorded at the end of December 2009.
Based on RAM’s evaluations and data provided by Bank Negara Malaysia,
gross financing (20% increase year-on-year) continued to outpace deposits
(14% increase year-on-year) last year. At the end of February 2014,
outstanding financing of the Shariah compliant industry was accounted at
RM289 billion (US$89.51 billion). Financing for the purchase of transport
vehicles constituted the largest portion (23%), followed by residential
property (22%) and working capital (22%). The Islamic banking system’s
financing-to-deposit ratio rose to 82% from 76% in December 2012, which
suggests greater competition for Islamic deposits in the future.
Looking at the robust growth demonstrated by Islamic banks over the last
few years, RAM suggests that there may be an uptick in the gross
impaired-financing ratio as these financing ratios become seasoned.
Islamic financial institutions in the country are believed to be well
capitalized with common equity Tier 1, Tier 1 and total capital ratios of
12.5%, 12.5% and 14.7%, respectively as at the end of February 2014.
Moving forward, it is believed that the gradual abrogation of Basel II
securities as qualifying capital, besides being an alternative source of
long-term funding, will support the issuance of Basel III-compliant
capital instruments for Islamic banks in Malaysia.
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