THE Islamic banking industry registered strong expansion last year with increased share of the total banking system in assets, financing activities and deposits.
Asset quality recorded further improvement, as seen in the declining trend in net non-performing financing ratio and high loss provisions.
The improved performance was characterised by strong capitalisation levels attributable to increases in capital and profits as well as higher financing activities, with significant growth in financing for purchase of passenger vehicles and residential property.
The total capital base of Islamic banking institutions increased from RM5.1bil as at end-2002 to RM6.8bil at end-2003. New capital injections contributed RM1bil to the increase in capital base in 2003 while audited profits contributed RM414.6mil.
Total tier-1 capital increased by RM1.4bil or 31.1% to RM5.9bil, while total tier-2 capital rose RM215.9mil following an increase in general provision for bad and doubtful financing.
Reflective of the strong capital position of the Islamic banking system, its risk-weighted capital ratio and core capital ratio remained consistently above 11% and 9%, respectively, throughout the year.
Total assets of the Islamic banking industry rose by RM14.1bil or 20.8% to RM82.2bil. Most of this increase came from the growth in total financing of the Islamic banking scheme (IBS) of conventional commercial banks (33.6%) and the IBS of conventional finance companies (56.7%), constituting 78.3% of total financing.
Total financing extended by Islamic banking grew 32.4% or RM11.9bil, attributable largely to significant growth in financing for the purchase of passenger vehicles (up 60.8%) and residential property (up 33.3%). Financing based on bai' bithaman ajil (deferred payment sale) remained dominant, constituting 47.7% of total financing, and that on ijarah thumma al-bai (hire purchase) constituted 27.6%. As at end-December, the gross and net non-performing financing ratios stood at 8.6% (2002:8.9%) and 5.5% (2002:5.7%), respectively.
The Islamic banking sector posted an increase in net finance income of RM555mil at the operating level, and a pre-tax profit of RM977.2mil compared with RM947.8mil in the previous year.
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