Time to boost Islamic deposits

Chartered Institute of Islamic Finance Professionals (CIIF) president Datuk Badlisyah Abdul Ghani

KUALA LUMPUR: The Islamic banking industry needs to explore ways to attract more deposits in the wake of stiff competition from institutional funds.

Islamic banking veteran Datuk Badlisyah Abdul Ghani said Islamic banks were struggling to raise deposits from the consumer market.

“A substantial amount of Islamic funds are now placed with institutional funds in the likes of Permodalan Nasional Bhd and Lembaga Tabung Haji. As a result, there is an ongoing struggle to attract funds into the Islamic banking space.

“The big chunk of the deposits in Islamic banks are institutional deposits,’’ he told StarBiz.

Badlisyah, who is also the president of the Chartered Institute of Islamic Finance Professionals (CIIF), added that Islamic banks need to do more to attract funds and spur growth.

Although he expected growth in Islamics but it was still relatively small compared with conventional deposits.

In the past, he noted that Islamic deposits had been growing by double-digit but now it was growing by a single-digit.

Badlisyah noted that it was a concern if one were to look at the asset size of both Islamic and conventional banking.

For Islamic banking, with its total asset size of about RM917bil, it should be growing by at least a double-digit if not by triple-digit. This total asset size figure includes development financial institutions.

But this is not the case, he said, noting that at the same time, this was merely an adjustment phase for the Islamic banking industry similar to other industries.

On Islamic banking asset, Badlisyah said it had been growing albeit at a moderate rate.

He attributed it to, among others, the consolidation in the Islamic banking space and compliance of new rules required by the regulators. He viewed this as temporary and was confident banks would continue with their asset building exercise once they have sorted out the above issues.

Meanwhile, RAM Ratings in its latest edition on Islamic banking said Islamic financing is still anchoring the growth of the overall Malaysian banking sector.

It noted that Islamic banking continued to expand at a much faster pace than conventional loans in 2018, coming in at 11% (2017: 10.3%), in contrast to the latter’s 3.3% growth.

As of end-January 2019, Islamic financing comprised some 32% of the overall system’s loans.

The rating agency expected financing growth of the Islamic banking sector to stand at around 10% to 11% in 2019.

As for the value-based intermediation (VBI) which is gaining momentum in Islamic finance, Badlisyah noted that this practice was good for Islamic finance over the long term albeit some hiccups in the short term.

He said banks would need, to be not only profit-centric but also socially-oriented.

Over the long term, VBI would strengthen Islamic banking including earning prospects and outweigh costs. VBI is an intermediation function that aims to deliver the intended outcomes of syariah through practices, conduct and offerings that generate positive and sustainable impact to the economy, community and environment, consistent with the shareholders’ sustainable returns and long-term interests.

The biggest challenge for Islamic banks Badlisyah said, is complacency.

There is growth in the industry but only single-digit and more must be done to spur the industry.

Although the Islamic banking industry has invested the best resources and infrastructure but there is still room for further growth, he stressed.

“There must be self-reflection on the part of the industry as to what needs to be done to further propel Islamic banking. This is the question which needs to addressed by the industry,” he said.

As for the CIIF, which have about 1,000 members, Badlisyah said some time this month, the professional body would be introducing the Chartered Professionals in Islamic Finance.

He said this would be a valuable qualification which would give a shot in the arm for Islamic finance.

CIIF is the only International Islamic Professional body in the world which is based in Malaysia.

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