Chart of the Week: What's dragging the growth of Islamic banks in ASEAN? | Asian Banking & Finance

Chart of the Week: What's dragging the growth of Islamic banks in ASEAN?

Malaysia and Indonesia are still trailing behind their GCC peers.

Islamic banks in Malaysia and Indonesia still have a long way to go before they can catch up to their peers from the Gulf Cooperation Council (GCC) markets as their limited capital positions hinders their otherwise positive growth prospects, according to a report from Moody’s Investors Service. 

The capital gap between conventional banks versus Islamic lenders is noticeably much larger in Indonesia than Malaysia despite accounting for a significant share of total banking assets.

“Small balance sheets are constraining Islamic banks’ ability to provide large financing for corporates or projects,” the firm said in a report.

Also read: Can Islamic fintech gain momentum in Malaysia?

Islamic banks in the region also have smaller retail deposit bases than their conventional peers and Islamic banks in the GCC, which could prove a weakness as they rely too heavily on large corporate deposits. Such deposits are less stable than retail deposits and could weigh in on liquidity coverage ratios under Basel III rules.

“Resolving these limitations will require significant investment, which banks will commit to only if governments are willing to support Islamic banking growth,” added Moody’s.

Malaysia targets to boost the share of Islamic banking assets in total banking assets to 40% by 2020 from 32% as of August 2018 whilst Indonesia is similarly seeking to increase the proportion from 6% in July 2018 to 15% by 2023.

Malaysia is fast leading the way for Islamic financing in the region on the back of heightened regulatory initiatives to boost the attractiveness of the sector including the introduction of the value-based intermediation (VBI) framework and the launch of the first bank-intermediated online platform for shariah financing and investment in 2016.

“VBI adoption will create opportunities for banks to venture into new business segments such as social financing, although this will introduce new risks that require prudent risk management, underwriting standards and governance,” added Moody’s.

Get Asian Banking & Finance in your inbox
Since you're here...

...there are many ways you can work with us to advertise your company and connect to your customers. Our team can help you dight and create an advertising campaign, in print and digital, on this website and in print magazine.

We can also organize a real life or digital event for you and find thought leader speakers as well as industry leaders, who could be your potential partners, to join the event. We also run some awards programmes which give you an opportunity to be recognized for your achievements during the year and you can join this as a participant or a sponsor.

Let us help you drive your business forward with a good partnership!

The number of HNWIs is expected to reach 3.9 million in 2021 or 60.6% of the population.
Banks have to remain consistent and continuous in testing best practices.
Shares were priced at the top end, at KRW39,000 ($34).
In January, 1.2 million transactions were carried out via the SGQR.
Its launch will require legal changes to the nation’s foreign exchange and IT rules.
But less than half of consumers are impressed with the digital financial services currently offered.
Treasury teams can mobilize liquidity and fund intraday payments in real-time.
Customers have the option to pay their tax balances in full or partially.
About 750 new accounts have been opened in four APAC markets through the new portal.
UnionDigital will be a wholly-owned subsidiary of the Philippine lender.
SmartStream’s Peter Hainz and Amazon Web Services’ Anna Green shared their insights on the advantages of on-demand and highly scalable cloud environments for banks and other financial institutions, as well as the factors hindering its adoption in the region.
This August, the Asian Banking & Finance and SAP will provide insights on the evolving landscape for ESG in financial services.
Thirteen lenders noted that demand was moderately weaker than the preceding 3-month period.
Investors will likely seek signs that private lenders will be able to step up lending once COVID subsides.