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Monday, 23 February 2015

Indonesia plans to create USD8bn mega-Islamic bank

According to the chairman of Indonesia's Financial Services Authority, Muliaman Hadad, the merger between the Islamic finance units of government-controlled Bank Mandiri, Bank Rakyat Indonesia and Bank Negara Indonesia, as well as a small unit of Bank Tabungan Negara, could happen as early as this year. 

The idea behind the mega-merger is to create an Islamic banking institution that would be able to face the growing foreign competition in Shariah-banking in Indonesia through so-called "Islamic windows" of conventional banks, as well as to boost the currently quite small market share of Islamic finance in the country of about 5% four-fold to 20% by 2018, as per a forecast by the Indonesia Islamic Banking Association, bringing the share on par with Malaysia. 

The new Islamic mega-bank would also be a catalyst for new products for retail customers and businesses and generally improve public awareness of Shariah-compliant finance. It would have lower operating costs and through its combined asset base would be able to finance larger infrastructure projects in the country, Hadad argued. 

Together with a five-year roadmap for Islamic banking development drafted by Indonesia's Financial Services Authority, the new focus on Islamic finance should correct the imbalance between Indonesia's huge Muslim population and their low use of Shariah-compliant financial products and services. For example, while the number of Indonesia's Muslims is 12 times higher than Malaysia's - Indonesia also has the largest Muslim population of any country in the world - total deposits at Islamic banks are less than a sixth of Malaysia's, the Jakarta Globe cited official data. The roadmap thus plans to introduce clear new regulations on Islamic finance, as well as incentives to attract first-time investors to the Islamic finance market. It also will seek that the new mega-Islamic bank will integrate itself into the global financial system by bringing its risk management and capital requirements in line with international standards.

Compared internationally, with just $24bn, Indonesia's Islamic banking assets are currently just slightly above the UK's, where Islamic banking has grown impressively in the recent past and reached an asset base of $19bn as per 2014. They are also significantly lower than Saudi Arabia's ($260bn), the UAE's ($90bn) and Qatar's ($60bn). Malaysia's Islamic finance assets are worth around $115bn as of 2014. 

With regards to foreign investors, Indonesia has already tested the appetite for sukuks, or Islamic bonds. In September last year, a US-dollar denominated $1.5bn sovereign sukuk had an orderbook comprising $10bn worth of bids submitted by foreign investors, having been more than 6-time oversubscribed. The huge demand for this bond has prompted the Indonesian government to come back with another sukuk issue as early as in the first half of 2015.

Economists also point at a regulation that requires conventional banks in Indonesia to separate their "Islamic windows" - or Islamic banking units of which there are more than 20 currently in operation by domestic and foreign conventional banks- into dedicated standalone institutions by 2023 similar to what the Qatar Central Bank asked conventional banks in Qatar to do in 2012. It is expected that this regulation will lead to a noticeable consolidation among such "Islamic window" units in the coming years in Indonesia.

(Zawya / 22 February 2014)
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Islamic financing aiding robust growth in Oman's banking sector

Muscat: Oman is a prime location for the Islamic finance sector to thrive and statistics show that it will do so, was the main conclusion of the Accounting for Islamic Finance event held by ACCA Oman's members' advisory committee (the Association of Chartered Certified Accountants).

Sponsored and held at Bank Muscat Meethaq, Sulaiman Al Harthy, Group General Manager of Islamic Banking at Bank Muscat and Khalid Yousaf, Director of Islamic Finance Advisory Services at KPMG Oman spoke at the event.

Sulaiman Al Harthy said: "Meethaq is proud to host the ACCA member event Accounting for Islamic finance as part of initiatives reflecting the bank's focus on maintaining the leadership role in Islamic banking and finance. Islamic banking in the Sultanate is contributing to the growth and development of the banking sector in Oman and Meethaq is committed to sustaining its contribution to Oman's economy in light of the emerging trends."

"With strong economic growth projections, significant government expenditure on infrastructure projects and a young, Shari'a-sensitive population, Oman has all the ingredients required for a successful Islamic finance sector. Apart from Islamic liquidity management, the challenge is in tackling long-term funding requirements," he added.

Islamic banking assets
"Islamic banking assets in Oman stood at $2.8 billion in June 2014, or 4.4 per cent of total banking assets, since the launch of Islamic finance less than two years ago in January 2013. This growth is expected to continue and Islamic banking assets are projected to grow to between $5 billion to $7 billion by 2018. The growth is driven by a combination of the enabling environment fostered by regulators and a young, Shari'a-sensitive population."

"Meethaq has adopted the best practices in Islamic banking and finance worldwide to combine a robust model which protects customers and complements the Islamic banking industry. In just over two years of operations, Meethaq has attained a leading position in the Islamic banking industry in Oman with over 50 per cent of financing receivables."

Growing public awareness
KPMG director Khalid Yousaf said: "Growth of Islamic Finance in Oman has been slow but steady. 2015 is likely to see all Islamic Banks and Windows break-even and turn profitable, merely within two years of start-up operations. Growing public awareness will feed further growth in the coming years.
"Though still small compared to conventional finance, Islamic Finance has created its niche space globally. Its transactions being largely participation-based, appeal not only to faith-based investors but also to conservative risk-takers shunning high levels of leveraging."  

Maqbool Al Lawati, chair of ACCA's members' advisory committee in Oman, said: "The event highlighted products available in Oman for Islamic banking and how successful the sector has been in the past few years. 

"More than 60 ACCA members and key employers attended the event which I think proves just how interesting and important this topic is," he added.

(Times Of Oman / 21 February 2015)
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