Outdated property rules may bite Malaysia's Islamic banks | Asian Banking & Finance
,Malaysia

Outdated property rules may bite Malaysia's Islamic banks

Real estate treatment by lenders still reflect Basel II norms.

Reuters reports that Islamic banking rules on real estate exposure remain behind the times as they still reflect Basel II or pre-reform Basel III standards, according to the General Council for Islamic Banks and Financial Institutions (CIBAFI). 

Also read: Foreign Islamic banks may soon be able to set up shop in the Philippines

A revised version of Basel III, finalised in December 2017, introduced additional requirements for how Islamic banks should treat real estate including concentration limits and independent asset valuations given its nature as an illiquid and cyclical asset class.

Around half of large Islamic banks and two-thirds of small Islamic banks have high to very high exposure to real estate and mortgages, according to a CIBAFI industry survey.

“As a result, Islamic banks may be hit particularly hard by any downturn in the real estate sector.”

CIBAFI urged national regulators to incorporate the Basel III revisions, whilst the Malaysia-based Islamic Financial Services Board (IFSB) should also revise its own capital adequacy standard for Islamic banks.

Islamic commercial banks are systemically important in Middle East countries of Saudi Arabia and Qatar although it has been booking fast growth rates in Malaysia after expanding by 10.3% in 2017 versus 1.7% for conventional banks, according to RAM Ratings.

Also read: Can Islamic fintech gain momentum in Malaysia?

“Our analysis shows that Islamic financing has overtaken conventional loans as the growth driver for the [Malaysia] domestic banking system in recent years. Islamic financing accounted for 71% of the increase in the banking system’s financing in 2017,” said RAM co-head of financial institution ratings Wong Yin Ching.

The Indonesian government is also fast-tracking reforms to drive growth in the Islamic banking sector with the launch of the 10-year national Islamic finance master plan released last year following the formation of the National Committee for Islamic Finance in July in an effort to boost low penetration levels of 5-10%. 

Here’s more from Reuters:

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.