PETALING JAYA: Challenges or not, Islamic banking is set to continue its growth momentum this year. Underpinning this is the planned conversion of development financial institutions (DFIs) into full-fledged Islamic banks, a growing demand for Islamic finance, a strong sukuk market and anticipated mergers among Islamic banks.
Industry observers and players reckoned that these factors would spur the growth of the industry and hot up competition among the players, both existing and new.
Statistics concur with this. According to the Ministry of Finance (MOF)2012/2013 Economic Report, Islamic banking continued to expand in the first seven months of 2012, with total assets increasing 20.6% to RM469.5bil, representing 24.2% of the country's banking system assets.
As at end-September 2012, Malaysia still dominated the global market with 74% of global sukuk issuance, a Bank Negara report indicated.
Ernst & Young Malaysia director for Islamic Banking Group (Global Financial Services) Muhammad Syarizal Rahim told StarBiz there were several factors that would spur this growth momentum despite the challenges present.
According to him, the game changer in the country's bid to double its share of Islamic banking assets by 2020 and the contributing sustained growth trend in 2013 would be the conversion of DFIs into full-fledged Islamic banking institutions by 2015.
This would, among others, involve the conversion of existing DFI loan and deposit products into Islamic products.
“It is projected that the demand for sukuk instruments will continue to grow, outpacing global supply and providing opportunities for Islamic banks to establish and grow their Islamic fixed income advisory platforms.
“The anticipated consolidation among Islamic banks will also continue, including the creation of a mega Islamic bank. This trend will ensure the continued strengthening of Islamic banks and will be crucial for their planned expansion to be regional players,'' Syarizal noted.
With a total Muslim population of about 60% of the total population, he said there were significant opportunities for the Islamic banking players in the country to increase their market penetration.
He added, however, that there were a number of key challenges for the Islamic banking players in achieving their growth prospects. Although the overall profitability has improved, he felt the operating expenses were still higher for Islamic banks.
The largest operational cost tended to be for human capital, he said, noting that there was also a need to increase technology enablement so services could be delivered more effectively and efficiently. Apart from this, Syarizal said Islamic banks would need to better manage their asset quality, with risk and governance often a complex and sensitive factor in deciding revaluations or disposals.
As for competition, Maybank Islamic Bhd CEO Muzaffar Hisham said the bank welcomed it, as it was confident of its services, corporate philosophy and ability to maintain market leadership. Towards this end, he added that the bank was also committed to improving efficiency and customer satisfaction amidst increasing competition in the market.
“We have successfully expanded our domestic market share in both deposits and financing, 22.9% and 25.9%, respectively, for 2012. Our profit before tax has also recorded a 43.8% year-on-year growth in the first nine months of last year. We are cementing and establishing our domestic leadership in Islamic banking and aggressively pursuing a regional push,'' he noted.
To differentiate itself in the area of Islamic banking, Muzaffar said the bank would continue to strive in providing innovative syariah-compliant solutions for the benefit of its customers. Last year, Maybank Islamic had extended its Premier Mudharabah Account-i to small and medium enterprises, business banking and corporate segments.
He said the bank had also launched the new variable rate of mortgage financing under the concept of Commodity Murabahah. Besides this, it had enhanced the bank's Ikhwan credit card offerings via the Ikhwan Visa Infinite launch.
It had also introduced the M2U Savers-i, an online savings account for the convenience of opening, accessing and closing accounts from anywhere in the world.
Meanwhile, OCBC Al-Amin Bank Bhd director and CEO Syed Abdull Aziz Syed Kechik concurred with Muzaffar, saying that competition in Islamic banking would continue to intensify and was a good thing.
The industry's attractive growth rate across various markets would attract more players, with the healthy competition driving further improvements in the industry.
In terms of differentiation and strategies employed in Islamic banking, he said: “Each player has its own unique value proposition and market strategy. For home-grown firms, the entrenched and well-established position coupled with various home market advantages provides the solid base to grow further.
“For offshore-owned entities, meanwhile, the capability to tap into their international/regional group resources and network provides some degree of advantage in growing the Islamic finance business base across borders.”
(The Star Online / 21 Jan 2013)
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com