Malaysia International Islamic Financial Centre Leadership Council chairman Tan Sri Azman Mokhtar.
KUALA LUMPUR: The exit of foreign backed Islamic lender Kuwait Finance House (M) Bhd from the local banking scene does not indicate an oversaturation in the domestic Islamic banking sector, says Malaysia International Islamic Financial Centre Leadership Council chairman Tan Sri Azman Mokhtar.
Azman said looking at both the macro and micro data, the assets in the local Islamic banking system accounted for 45.6% of total banking assets at the end of last year. In fact, this number is expected to surpass 50% in one to two years.
“I think sometimes companies come and go, it is okay. But overall, the direction is very clear.
“If we look at the capital markets, Islamic instruments account for more than 64% or RM3.9 trillion like sukuk and equity.
“For banking, 45.6% is already syariah-compliant and this is expected to rise above 50%.
“The largest bank, for example, Malayan Banking Bhd
is already at 69%.
“Secondly, we note the momentum is actually very strong because syariah-compliant Maqasid al-Shariah principles are actually very sustainable and inclusive principles that are ultimately good for the customer base with regards to the medium and long term sustainability,” he said at the sidelines of the Invest Syariah Conference 2024 at Bursa Malaysia yesterday.
Azman said the Islamic banking system has grown by a compounded annual growth rate of over 11% for the last 20 to 30 years. As such, today the global Islamic financial assets are valued at roughly US$4.5 trillion.
“Actually the assets are probably more than that because the assets under waqf and zakat are not included. By some projection, this number will grow by double digits to US$6.7 trillion before the end of this decade, possibly sooner.
“Having said that, as a percentage of the global system, it is still a relatively small number. This means there is a lot of upside,” he said.
Additionally, Azman stated Malaysia’s Islamic financial system has been long established and there is an in-built system on aspects like zakat and waqf.
“All of this is very much in line with the objectives of what the Madani economy wants to achieve in raising the floor through instruments like zakat and waqf with digital banks also a part of that, as well as the ceiling on growth and development,” he said.
In the panel discussion titled, “Maqasid al-Syariah Ecosystem in Financial World: Are we there yet?”, Bursa Malaysia chairman Tan Sri Abdul Wahid Omar said 81% of the total public-listed companies on Bursa Malaysia are syariah-compliant.
Nonetheless, he said there are only about five listed syariah-compliant financial services stocks, with a combined market capitalisation of only RM20bil, making up less than 5% of the total market capitalisation of the financial stocks on the exchange.
“The idea is to get all the listed companies to be syariah-compliant.
“So at 81%, we have covered almost all, except for a few who face technical challenges due to gearing levels and having sizable borrowings.
“There is also an issue about the thresholds for non-compliant income, whether it should be 5%, 10% or 15%.
“Those we are not worried about, except for the banks. If we can continue to work on syariah-compliant Islamic instruments resulting in indirect listing of the syariah-compliant businesses, I think that will all go well. Not just the banks, but also the insurance companies as well,” he said.
Abdul Wahid added there are already existing Islamic financial institutions that are ripe for listing like Bank Muamalat (M) Bhd.
“It is just a matter of convincing their shareholders that it is actually the right thing to do.
“Sometimes people look for the right timing and valuation where they want to grow first, but I always believe that when you take a sizeable entity for listing, one of the biggest benefits is not just access to capital, but the transparency of performance and that will drive better performance by management and so on,” he said.
