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Friday, 22 March 2013

Islamic Banks in Indonesia, Malaysia Go Rural

Kuala Lumpur/Jakarta. Islamic banks in Malaysia and Indonesia are opening new branches in rural areas as they target the newly rich in Southeast Asia’s largest Muslim nations.     

HSBC Amanah Malaysia added 22 outlets in the last three years, bringing the total to 26 across the country, chief executive officer Rafe Haneef said in an interview on Wednesday. 

BRI Syariah, a unit of Bank Rakyat Indonesia, will set up 94 branches in 2013 to meet demand in smaller cities such as those on the islands of Java and Sumatra, according to Lukita Tri Prakasa, the bank’s corporate secretary.     

BRI Syariah predicts a record year for its Shariah- compliant savings, while HSBC’s Rafe said Islamic bank deposits now offer returns comparable to regular lenders. Malaysia’s per capita gross domestic product rose 6.3 percent to $16,900 in 2012 from 2010, while Indonesia’s equivalent climbed 11 percent to $5,000, US government data show.     

“Islamic banking has become more accessible,” Kuala Lumpur-based Rafe said. “It’s all about convenience, quality of service and pricing. Since we have more branches, we should be able to garner more deposits.”     

HSBC Amanah’s branches outside the capital Kuala Lumpur include one in the eastern state of Sabah on Borneo island.      

‘Tremendously Vast’     

Savings are rising as economic growth in Asia outpaces developed nations. Indonesia, Southeast Asia’s largest economy, will expand 6.3 percent to 6.8 percent in 2013, after growing 6.2 percent last year, the central bank said in a March 7 statement. The International Monetary Fund projected in January that the US will expand 2 percent, while the euro zone will contract 0.2 percent.     

BRI Syariah predicts its savings that comply with the Koran’s ban on interest will increase 73 percent to a record Rp 19 trillion ($1.9 billion) this year as the lender targets customers in rural areas, Jakarta-based Prakasa said in an interview on Wednesday.     

Indonesia’s Islamic deposits at all its 11 Shariah-compliant lenders rose 27.8 percent to an all-time high of Rp 147.5 trillion in 2012, central bank data show. Banking assets complying with Muslim tenets increased 34 percent to Rp 195 trillion, representing 4.6 percent of the total.     

“The market in Indonesia is still tremendously vast and relatively untapped,” BRI Syariah’s Prakasa said. “Our expansion isn’t so aggressive considering the sheer potential.”                          

Sukuk Demand     

Increasing savings may help spur demand for sukuk as banks look to invest their funds and boost returns. Global appetite for the debt is set to triple to $900 billion by 2017, according to a September report from Ernst & Young LLP.     

Worldwide sales of Islamic bonds fell 16 percent to $8.3 billion in 2013 from a year earlier, after reaching a record $46.4 billion in 2012, data compiled by Bloomberg show.     

Average yields on global Islamic bonds have climbed 10 basis points, or 0.10 percentage point, to 2.91 percent this year, 24 basis points off a record low of 2.67 percent on Jan. 10, the HSBC/Nasdaq Dubai US Dollar Sukuk Index shows. 

The premium investors demand to hold the securities over the London interbank offered rate, or Libor, narrowed seven basis points to 175 basis points.     

Islamic notes returned 0.4 percent in 2013, the HSBC index shows, while debt in emerging markets lost 2.2 percent, according to JPMorgan Chase & Co.’s EMBI Global Index.                      

‘Value Proposition’     

Malaysia’s CIMB Islamic Bank, part of CIMB Group Holdings, the nation’s biggest sukuk arranger last year, isn’t currently planning to add to its 312 outlets, chief executive officer Badlisyah Abdul Ghani said.     

“We are focused on relocation of existing branches,” Badlisyah said in an e-mailed reply to questions on Wednesday. “In growing markets such as Indonesia, greater awareness on the value proposition of Islamic deposits and greater deposit offerings would drive up demand.”     

Maybank Islamic, Asia Pacific’s largest Shariah-compliant lender and a unit of Malayan Banking, sees deposits increasing 15 percent to 20 percent this year from 71 billion ringgit ($22.8 billion) in 2012, chief executive officer Muzaffar Hisham said in a March 19 interview in Kuala Lumpur.     

The lender plans to roll out savings products that offer more competitive returns as Muslim wealth rises with Malaysia’s improving economic outlook, he said.     

“About 30 percent to 35 percent of our deposit base is from retail,” Muzaffar said. “We are still dependent on the liquidity of our institutional depositors but it’s a balancing act.”                        

Malaysia Growing     

The Southeast Asian nation’s gross domestic product will rise 5 percent to 6 percent in 2013 after growing 5.6 percent in 2012, supported by domestic demand, Bank Negara Malaysia forecast in its annual report issued yesterday.     

The Bloomberg AIBIM Bursa Malaysia Corporate Sukuk Index, which tracks 57 ringgit-denominated notes, climbed 1 percent to a record high of 103.305 this year.     

Islamic deposits in Malaysia increased 14 percent to a record 386.2 billion ringgit in 2012, according to the central bank’s annual report. There were 16 Shariah-compliant lenders and 10 booths at non-Islamic banks offering services in the country, it said. 

Banking assets complying with Muslim tenets rose 14 percent to 494.6 billion ringgit, or 23.8 percent of the total.     

“Deposits are growing due to an increase in structured investments which lock in deposits for a period of time,” HSBC’s Rafe said. “In Indonesia, the same applies. There are more Islamic banks and products.

(Jakarta Globe / 21 March 2013)

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