You are here
Malaysia's biggest bank says Islamic loans overtake conventional
[KUALA LUMPUR] Malayan Banking Bhd provided more Islamic loans than non-Shariah compliant financing in Malaysia for the first time in 2015 and the business was also more profitable.
Maybank Islamic Bhd contributed 51 per cent of financings by the nation's biggest lender, up from 44 per cent in 2014, and a share 10 to 20 per cent age points higher is possible, chief executive officer Muzaffar Hisham, said in an interview in Kuala Lumpur on Wednesday. The unit achieved an average 16 per cent return on equity in the last four years, compared with 14 per cent for its parent.
"There's no doubt it will be challenging but what we have done over the last couple of years surpassed the expectations of the industry," said Mr Muzaffar. Maybank Islamic attracted more customers due to competitive rates and its contributions to zakat, or charity, have also helped it lure business, he said.
The lender's success bodes well for the government's goal of having 40 per cent of banking comply with the tenets of the Koran by 2020, up from 26 per cent at the end of August. Malaysia, where more than 60 per cent of the population is Muslim, pioneered Islamic finance in the 1980s and is the world's biggest issuer of Shariah-compliant bonds.
"Maybank's achievement augurs well for the Islamic finance industry and there's still growth potential," said Nik Norzrul Thani, chairman of Kuala Lumpur-based law firm Zaid Ibrahim & Co.
"It will also spur other lenders, both locally and internationally, to match its returns."
Maybank Islamic's total financing rose 21 per cent to RM131.1 billion (S$44.2 billion) last year. Growth will probably moderate to less than 10 per cent in 2016 due to slowing economic growth and global headwinds, Mr Muzaffar said.
Malaysia's economy, which has been hurt by falling commodity prices, will expand 4.4 per cent this year, from 5 per cent in 2015, according to a Bloomberg survey.
Shariah law forbids the payment of interest and Islamic loans are structured using discounts, sale or lease, profit participation or repurchase agreements.
The bank sold RM1 billion of Basel III compliant sukuk maturing in 2026 last month at a coupon rate of 4.65 per cent and the debt yielded 4.95 per cent on Thursday, according to prices compiled by Bloomberg. The lender may tap the local Islamic bond market again this year if a "window of opportunity arises," Mr Muzaffar said.
Maybank Islamic is the world's third-biggest Shariah lender outside of Iran after Saudi Arabia's Al Rajhi Bank and Kuwait Finance House. The Kuala Lumpur-based bank's profit before tax grew at an average of 18.6 per cent in the past five years to RM1.64 billion in 2015. It's the domestic market leader for loans and deposits with respective market shares of 33.5 per cent and 26.3 per cent.
A global Islamic population that's expanding faster than non-Muslims and becoming more wealthy is driving growth in Shariah-compliant finance. The industry's worldwide assets will double to US$3.4 trillion by 2018 from 2013, according to an estimate by Ernst & Young LLP.
"Islamic banking itself is already a bit of a blue ocean that we can tap," Mr Muzaffar said.