Indonesian Islamic bank assets increase 34%

Indonesian Islamic bank assets increase 34%

Aloysius Unditu and Shanthy Nambiar, Bloomberg/Jakarta

Indonesia's Islamic banking industry expanded its assets by more than a third in the first nine months of this year as more consumers and businesses sought services that comply with religious law in a nation with the largest Muslim population.

Assets held by banks that comply with Islam's ban on interest payments increased 34 percent to Rp 18.7 trillion (US$1.9 billion) as of Sept. 30, Harisman, a director in the central bank's Directorate of Islamic Banking, said in an interview in Jakarta.

"We are bit surprised by the industry's growth this year," Harisman said. "More Indonesians are now aware about Islamic banking, and banks are opening new branches." The central bank had forecast such assets would increase 20 percent this year.

Indonesia is pushing for a bigger role for Islamic finance and more access to domestic and overseas lenders to offer services that comply with Sharia, the Islamic law that bans payment and receipt of interest and forbids investment in tobacco, alcohol and gaming businesses. About 85 percent of the nation's 220 million people are Muslim.

Such assets in Indonesia totaled Rp 14 trillion at the end of last year, from Rp 7.85 trillion in 2003, the central bank said in March.

Islamic banks in Indonesia include PT Bank Syariah Mandiri, the largest by assets, PT Bank Muamalat Indonesia and PT Bank Syariah Mega Indonesia. Conventional lenders such as PT Bank Negara Indonesia, the third-largest lender, and PT Bank Niaga have Islamic banking units, according to the central bank.

The government, which raised $1.5 billion from its largest debt sale in October, is also studying ways to sell Islamic bonds overseas, Finance Minister Jusuf Anwar said on Oct. 6. Indonesia wants to attract investors from the Middle East who have profited from the increase in oil prices and are seeking Islam-compliant investment avenues, he said then.

The government is seeking investment to boost economic growth and says its $258 billion economy, Southeast Asia's largest, will expand as much as 5.8 percent this year, the fastest since 1996, from 5.1 percent last year.