Malayan Banking Bhd, although not having a standalone Islamic bank, is Asia-Pacific's largest Islamic banking service provider with US$6.4 billion (RM22.48 billion) Syariah-compliant assets, according to The Asian Banker Research.
In its inaugural survey of Islamic banking institutions in the region, The Asian Bankers said the Syariah-complaint assets held by Maybank's Islamic banking window is about 50% more than Bank Islam Malaysia Bhd, the biggest full-fledged Islamic bank and second largest player in the region.
It also said Malaysia leads the pack with 17 institutions holding 73% of the top 40's total assets. The survey, The Asian Banker Islamic Bank 40 (IB40), identifies and ranks the 40 key players in the region.
Banks in only six countries within the Asia-Pacific made it into the IB40 ranking: Bangladesh, Brunei, Indonesia, Malaysia, Pakistan and the Philippines. They either have standalone Islamic banking operations or Islamic windows as part of a conventional commercial bank.
“Malaysia’s efforts in positioning itself as an Islamic banking hub are paying off –-despite similar ambitions from neighbouring Brunei and Singapore, the country is the undeniable centre of Islamic banking activity in the region,” said Zhang Wei, research analyst at The Asian Banker.
He said Islamic banking is a relatively new concept in many countries, but had been in Malaysia since 1983. Malaysia now has 10 full-fledged Islamic banks, with more banks planning to spin off their Islamic banking windows into standalone Islamic banks.
Zhang said despite the Muslim majority in Malaysia, Islamic banking assets accounted for only 10.8% of total banking sector assets in the country. "The penetration of Islamic banking in other countries is much lower, even in Pakistan, where 97% of its population is Muslim."
He said the top 40 Islamic banking institutions reported a 20.9% asset growth to nearly US$40 billion -– more than three times the average 6.6% growth of the region’s 300 largest banks.
“We do not expect this growth cycle to slow down in the next three to five years, given the sheer population size of the 700 million Muslims in the region and the low penetration of Islamic banking in the financial services sector.
"Nor is Islamic banking limited to Muslim adherents; the principles of Syariah banking are applicable to investors of all religious followings,” Zhang said.
The survey said the average return on asset (ROA) demonstrated by the top 40 Islamic banking players was only 0.76%, a "smidgen higher" than the average 0.7% of the 300 largest banks despite much stronger asset growth.
"Both are also much lower than the reported figures of leading global financial institutions such as HSBC and Citigroup," Zhang said.
He said: “One key factor affecting the profitability of Islamic banks is the lack of options and flexibility in optimising the use of the funds provided by Muslim as well as non-Muslim depositors and investors, specifically for Islamic banking products.”
Zhang said many Islamic banks had to maintain very large cash surpluses on their books to meet short-term deposit withdrawal obligations and working capital needs.
"This is because the conventional interest-based interbank market for short-term liquidity management is not regarded as Syariah-compliant," he said.
Zhang said markets in the region had yet to develop a short-term Riba-free facility with sufficient depth to alleviate the heavy opportunity cost burden of Islamic banking players.
Syariah law prohibits Riba (the collection and payment of interest), gambling, which may encompass trading in financial risk and investing in businesses that are considered prohibited (haram), such as businesses that manufacture or sell alcohol or pork.
"Moreover, exceptional lending growth in the past few years has put pressure on available pools of capital for many Islamic banks.
"Unlike their conventional banking counterparts which are able to securitise part of their book to regain liquidity and obtain fee income, Islamic banks in many countries do not have this option due to the absence of a secondary market for Islamic financing.
"Further, many banks do not fully understand the intricacies of Islamic banking products," he said.
Zhang said Islamic financial institutions were also hindered by poor risk management skills as conventional hedging techniques like using derivatives and short-selling were often regarded as ‘speculative activities’ that were not compliant with Syariah principles.
"However, these challenges tend to be less pronounced in the Islamic banking windows of conventional commercial banks.
"The parent institution usually handles all treasury operations on behalf of the Islamic banking window and absorbs part of the overheads such as technology and premise costs," he said.
On the other hand, many strict Muslim investors also consider these institutions less ‘pure’ as far as Syariah principles are concerned, and are hence less willing to fund these activities.
“This is probably one of the reasons why we are seeing more and more Malaysian banks spinning off their Islamic windows into standalone Islamic banks to enhance the attractiveness of the proposition to the Muslim community,” Zhang said.
Source :
www.theedgedaily.com
