ISLAMIC products captured a larger share of the total retail banking market in line with Malaysia’s commitment to grow its Islamic banking sector, which also saw higher profits and better asset quality last year.
During 2002, the market share of Islamic banking assets of the total banking system increased to 8.9% from 8.2% in the previous year. The share of Islamic financing rose to 8.1% from 6.5%, while Islamic deposits grew to 10.2% from 9.5% previously.
Total assets of the Islamic banking sector increased 15.5% to RM9.1bil as at end-2002. The largest portion of assets remained with commercial banks participating in the Islamic banking scheme (IBS) of 42.8%, followed by Islamic banks (29.6%) and IBS finance companies (18.5%). The latter, however, registered the highest growth in assets of 29.5%.
Bank Negara said the collaborative approach adopted in the development of products and markets together with industry had benefited the development of Islamic banking. Last year, various new initiatives including a risk-sharing mode of financing based on the concepts of mudharabad (profit-sharing) and musyarakah (profit and loss sharing) as well as Islamic floating rate mechanisms for fluctuating market risks had been proposed.
According to Bank Negara, the capital position of the Islamic banking sector also strengthened significantly, increasing RM1.3bil to RM4.7bil primarily due to new compliance with the risk weighted capital adequacy ratio (RWCR) framework for the Islamic banking portfolio for IBS banks. As at end-2002, the Islamic banking sector registered a core capital ratio and RWCR of 10.9% and 12.6% respectively.
Profitability in the Islamic banking sector also improved with pre-tax profit rising 12.3% to RM948mil, while the sector’s net non-performing financing ratio declined to 5.7% from 7% last year, indicating improving asset quality.
Internationally, the successful launch of the first sovereign global Islamic sukuk by the Malaysian government as well as the development of the Islamic Financial Services Board in Kuala Lumpur represented important milestones in the global development of Islamic banking.
The US$600mil global bond, listed on the Luxembourg Stock Exchange and Labuan International Financial Exchange and was intended to access the international capital market with a product based on Islamic principles, met with overwhelming success particularly in the Middle East from where 51% of the investors originate.
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