KUCHING: The lslamic banking industry in Malaysia is going through a new phase of development with the implementation of the Islamic Financial Services Act 2013 (IFSA).
Ratings agency RAM Rating Services Bhd (RAM Ratings) says Ithe IFSA repealed the Islamic Banking Act 1983 and the Takaful Act 1984 while incorporating elements from the Payment System Act 2003 and the Exchange Control Act 1953.
The IFSA enhances the previous regulatory framework, requiring Islamic banks to comply with syariah and operational standards issued by Bank Negara Malaysia (BNM) and the International Syariah Research Academy in all facets of their business objectives and operations.
RAM Ratings said this ensures that syariah principles are truly adopted in Islamic contracts and all transactions, providing a holistic practice of Islamic banking.
Malaysia’s competitive advantage in Islamic finance is well acknowledged and continually strengthened by a conducive environment of progressive regulations, attractive tax regimes and, most crucially, supportive authorities.
The credit rating agency added the Malaysian Islamic banking industry’s assets have almost doubled in the last five years, expanding to RM423 billion as at end of February 2014 compared with RM220 billion as at end of December 2009.
RAM Ratings noted that those assets accounted for 21 per cent of the banking system’s assets.
RAM Ratings observed that gross financing in Islamic banking grew (20 per cent year-on-year(y-o-y) and continued to outpace deposits which grew 14 per cent (y-o-y) last year.
It said financing for the purchase of vehicles constituted the largest portion (23 per cent), trailed by housing (22 per cent) and working capital (22 per cent).
Islamic banking system’s financing-to-deposits ratio rose to 82 per cent as at end of February 2014 against 76 per cent as at end of December 2012.
It said this might signal greater competition for Islamic deposits in the future as the industry continues to grow.
In terms of asset quality, RAM Ratings observed that the Islamic banking system’s gross impaired-financing (GIF) ratio stood low at 1.4 per cent as at end of February 2014 compared with 1.7 per cent as at end-of December 2012.
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com