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Central bank figures present most banks as strongly capitalised with a minimal level of non-performing loans (NPLs) around the books. In line with a report issued on October 29 by Bank Negara, Malaysia’s banks had a risk-weighted money and core funds ratio at 14.8% and 13.1% respectively at the end of September, although NPLs represented just 2% of total mortgage portfolios.
Vincent Khoo, an analyst with UOB Kay Hian Malaysia Holdings, sees the banking industry sustaining its strong efficiency due to 7% GDP growth expected this yr and forecast of 6% in 2011.
“The banking sector is benefiting from the economic momentum; revenue growth will be powerful,” Khoo stated in an interview with the Bloomberg news company on November 9. “There are also a lot of restructuring, merger and acquisition offers, meaning there will probably be strong investment banking earnings.”
While loan exercise, deposit levels and earnings are all up, it is the Islamic banking section of the financial sector that’s expected to make the biggest headlines within the next couple of months, with no less than one new large scale sharia-compliant loan provider scheduled to enter the market before year’s end.
In the end of October, Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz confirmed that the reserve had granted two conditional licenses to different foreign teams to launch new Islamic banks, with 1 of these licenses set to become converted right into a full license by the finish with the yr and also the second by the middle of 2011.
The so-called “mega Islamic banks” are forming because of a huge reform method of your economic sector released by the federal government in April 2009. The process has included opening up banking to greater overseas involvement, encouraging mergers of more compact lenders and actively marketing the by now high-profile Islamic banking component of the business.
With out naming both in the prospective license holders, Zeti said the new large-scale banks represented the closing actions within the procedure of internationalising the country’s banking business.
“We have identified two parties who are creating preparations in concrete terms in their submissions to us,” she informed a press convention on October 26. “It is most likely that we’d announce the issuance on the initial [full] license by the end of this 12 months. These banks would interact in some retail company however the concentrate is international enterprise. These licenses would also encourage our linkages all over the world, not just with the Middle East and Africa, but additionally with Europe and the US.”
Nevertheless, although both banks needs to be granted licenses soon, Zeti said they nonetheless need to meet demanding problems for authorisation, which includes getting a minimal $1bn in paid-up capital. In addition they demonstrate that they possess a senior management team, proper improvement standards and an appropriate business plan.
The Bahrain-based Elaf Bank is looking for to enter the marketplace. In late October, chief executive Jamil El Jaroudi introduced the financial institution had applied for a license from Malaysian authorities to allow Elaf to function locally.
“If they give approval tomorrow, we are going to open tomorrow. We’re prepared. Now we have a strategic vision that we’d prefer to bridge the 2 main Islamic hubs, Bahrain and Malaysia,” he stated.
The decision to hunt a license was prompted by the accomplishment on the financial institution in securing mandates to advise on numerous monetary deals in Malaysia, valued at around $1.2bn, along with an additional $200m in Indonesia, El Jaroudi said.
“We have a few mandates right here in Malaysia and in Indonesia which convinced us more and much more that we’d wish to be in South-East Asia,” he stated, adding he hoped to listen to from Malaysian officials regarding the license application just before the finish of November.
Although the growing quantity of foreign Islamic banks looking for to enter the Malaysian marketplace may well ramp up competition for local lenders, the government believes that any strain will probably be offset by the benefits of a bigger and stronger banking sector.
Based on Zeti Aziz, the brand new entrants will make considerable contributions towards the sector by both strengthening product and human funds advancement and building on existing knowledge in foreign exchange markets.
As lengthy because the overall economy continues to expand, local banks should not feel the pinch from overseas opponents. On the other hand, will need to development slacken home-grown lenders may well uncover economies of scale and a narrow band of operations could come into play.
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