RAM: Islamic financing to grow 10-11 per cent in 2019

KUALA LUMPUR: Islamic financing growth is expected to stand at around 10-11 per cent in 2019 with Islamic banking still anchoring growth of the overall Malaysian banking sector, according to RAM Rating Services Bhd (RAM Ratings).

In the latest edition of its annual publication, Islamic Banking Insight, RAM Ratings said Islamic banking continued to expand at a much faster pace than conventional loans in 2018, coming in at 11 per cent from 10.3 per cent in 2017, in contrast to the latter's 3.3 growth in 2018.

“As at end-January 2019, Islamic financing comprised some 32 per cent of the overall system’s loans,” the research house said in a statement yesterday.

RAM Ratings, however, opined that Islamic financing might take longer to achieve Bank Negara Malaysia’s (BNM) 40 per cent target for it as a proportion of the overall system’s loans by 2020.

“While it may require more time to attain the targeted 40 per cent, the Islamic banking industry has come a long way in terms of maturity and breadth,” said co-head of Financial Institution Ratings, Wong Yin Ching.

Meanwhile, RAM Ratings maintained a stable outlook on the country’s Islamic banking sector, in line with its view on the overall domestic banking system.

Moving forward in 2019, the research house expected Islamic financing growth to hover around the low teens, with asset-quality indicators remaining resilient and see strong capitalisation.

RAM Ratings also expected the sector to register stable outlook on profitability despite a slight margin compression, and would strengthen funding profile in the lead-up to the implementation of the net stable funding ratio (NSFR) requirement.

BNM announced last year that it planned to extend the observation period of the NSFR for another year to 2020, although the central bank previously intended to implement the new liquidity standard at the earliest on Jan 1, 2019.