Malaysia sets the stage to become key Islamic banking hub in region
Malaysia sets the stage to become key Islamic banking hub in region
Agence France-Presse, Kuala Lumpur
With eight full-fledged Islamic banks including three Middle
East players, predominantly Muslim Malaysia has set the stage to
become a key Islamic financial hub in the region, analysts say.
The central bank last week completed a plan to fast-track the
liberalization of the Islamic banking sector this year, three
years ahead of the World Trade Organization (WTO) deadline in
2007.
It awarded the remaining two foreign Islamic banking licenses
to Saudi Arabia's largest bank Al Rajhi Banking and Investment
and a consortium led by the Qatar Islamic Bank after granting the
first one to Kuwait Finance House in May.
Three local banking groups -- Hong Leong Bank, Commerce-Asset
Holding Bhd. and RHB Capital -- were also granted approvals
recently to open Islamic banking arms, joining existing players
Bank Muamalat and BIMB Holdings Bhd.
Analysts said the entrance of foreign players would push local
banks to innovate and compete more aggressively in developing
Islamic products and services.
While neighboring Singapore and Hong Kong have established
themselves as the financial centers in Asia, Malaysia is carving
a niche to tap billions of dollars of Muslim funds seeking new
investment homes after the 2001 terror attacks in the United
States and uncertainties in the Middle East, they said.
"The intention of bringing in foreign players was not for them
to compete in the local market but to use Malaysia as a
springboard to do regional and global businesses, which will
eventually raise Malaysia's profile as a global hub for Islamic
finance and banking," said TA Securities research chief Ngu Chie
Kieng.
Islamic banking, first introduced in mainly-Muslim Malaysia in
1983, combines Islamic laws against interest payments with modern
banking principles.
The government has said it would gradually award Islamic
banking licenses to all banks as part of efforts to make the
segment grow and encourage the expansion of such services
offshore.
As of June, assets in Malaysia's Islamic banking sector stood
at 89.1 billion ringgit (US$23.45 billion), representing nearly
10 percent of the overall banking system, and the government aims
to double this to 20 percent by 2010.
Avenue Securities analyst Chan Ken Yew said the new foreign
players would bring in a different scope of experience and
expertise in terms of Islamic-compliant products and services.
"These foreign banks will be able to help attract the inflow
of funds from West Asia, a region with higher income per capita,
so the pie can eventually grow bigger for everybody," he said.
But despite the huge potentials, Chan cautioned that the
challenge for the Islamic banks were to ensure they have strong
risk management.
"It is hard for Islamic banks to do hedging. They will not be
able to capitalize on a high interest rate environment as they
cannot pass on the high rates to the customers," he said, adding
most banks generally favor conventional to Islamic banking.
Economists said there has been a boom in Islamic banking in
the aftermath of the Sept. 11 terror attacks in the United States
as investors pulled funds out of the West. The Islamic finance
market worldwide is estimated to be worth $200 billion and is
growing at 15 percent a year, they said.