S&P Global Ratings said the growth in Islamic financing remains primarily driven by domestic operations, with overseas business gaining traction in some markets.
KUALA LUMPUR: Malaysia’s Islamic financing will account for nearly half of the banking sector’s total financing by 2030 versus 42% as of the end of 2024, S&P Global Ratings says.
In its report Asia Pacific Islamic Banking Outlook 2026: Rebound Masks Regional Divergence, the ratings agency said this would be due to steady growth, supported by a comprehensive regulatory framework, a deep local sukuk market and strong retail acceptance.
“Consumers and small businesses will continue to drive financing growth, in line with growth trends at the country’s conventional banks,” S&P Global Ratings said.
It added that the growth in Islamic financing remains primarily driven by domestic operations, with overseas business gaining traction in some markets.
“Keen competition in Malaysia’s mature market has prompted some of the largest Islamic banks to examine overseas growth opportunities in South-East Asia, including Islamic wealth management.
“Malayan Banking Bhd
, which owns the largest Islamic bank in Malaysia, has started operations in the Philippines through an Islamic window,” it said.
The ratings agency expects financing growth for Asia Pacific’s Islamic banks to edge up toward the higher end of its forecast range of between 8% and 10% over the next three years after a slowdown last year.
Total assets are likely to surpass US$550bil by end-2028 against US$430bil at end-2024, constituting about 20% of the global Islamic banking market.
Additionally, Malaysian Islamic banks continue to play a key role in advancing inclusive financing, in line with the central bank’s value-based intermediation principles, the ratings agency said.
It said Malaysia and Brunei’s Islamic banks will maintain superior asset quality, with both countries’ non-performing financing ratios projected to remain below 2%, reflecting lower economic risks and higher wealth per capita.
“In Malaysia, asset quality is supported by banks’ prudent underwriting, diversified portfolio and conservative provisioning. Banks’ stage two financing, a measure of potential rise in risk, is manageable at about 7% as of the end of last September and has stayed broadly stable over the last two years.”
On financing‑to‑deposit ratios (FDR), the ratings agency said FDR in Malaysia is already elevated because of structural features in banking systems, such as higher reliance on costly wholesale deposits. — Bernama
