KUALA LUMPUR, March 30 (NNN-Bernama) — Malaysia’s Islamic banking sector remains on a positive trajectory with ample room for growth, according to a new report by Moody’s Investors Service.
Moody’s assistant vice president and analyst Tengfu Li said banks’ strong balance sheets will enable them to continue expanding as the government further develops the sector.
He noted that Malaysia has one of the most advanced Islamic banking systems among Muslim-majority countries.
“Islamic banks constitute a significant part of its banking sector, thanks to supportive government policies and the ‘Islamic first’ strategies that major banking groups have adopted to back state efforts.
“However, the sector still accounts for less than half of the overall banking system, giving it abundant room for further growth,” he said in a statement Wednesday.
Moody’s said Malaysia’s Islamic banks have borne the pandemic-driven disruptions well, emerging with strong balance sheets for growth.
“They have built ample reserves against potential losses, and their focus on the less risky consumer segment will support their asset quality. Their strong profitability will enable them to remain well capitalised, while their large deposit bases will provide sufficient liquidity for expansion,” it said.
According to Moody’s, the Malaysian government and central bank have laid out plans for the coming years, including strengthening Malaysia’s position as an international gateway for Islamic finance, among others.
“Government initiatives to advance the sector will help Islamic banks grow faster than their conventional peers.
“However, increasing cross-border Islamic financing could remain challenging because of the opportunistic nature of such transactions and the complexity of Islamic financial instruments compared with conventional ones,” it added.
— NNN-BERNAMA