Monday April 14, 08:32 AM
Islamic banking needs regulator support: Moody's
SINGAPORE (AFP) - East Asia's Islamic banking industry needs more support from regulators if it is to grow significantly, Moody's Investors Service said Monday.
Apart from Malaysia, the growth of Islamic banking has been "somewhat patchy" in the region, the ratings agency said in a report.
Malaysia, a multi-racial country with a majority Muslim population, shows how the Islamic banking sector can benefit from regulatory action, said Christine Kuo, author of the report.
"We believe the Malaysian experience over the last three decades demonstrates how instrumental regulators can and need to be in order to grow the Islamic banking sector," said Kuo.
Malaysian government reforms over the past 20 to 30 years "have really helped develop the necessary legal and regulatory framework and institutions for the industry to flourish," Kuo said.
"The adoption of various incentives, including tax breaks, has also proven critical to nourishing the business."
Kuo said Islamic banking in Malaysia now accounts for 15.4 percent, or 62 billion US dollars, of the country's banking system assets.
In Indonesia, the world's most populous Muslim nation, Islamic banking has grown rapidly in recent years but its market share still only accounts for less than two percent, or about three billion US dollars, Moody's said.
"The low penetration in Moody's opinion, can largely be attributed to the slow pace of change to related regulations and institutions -- though a few important changes seem to be gathering momentum," the report said.
It (Frankfurt: A0MLX5 - news) said Islamic banking has achieved relatively high market penetration in Brunei but Islamic banking services in the Philippines, Singapore and Thailand remain very small in terms of asset size.
Islamic banking fuses principles of sharia or Islamic law and modern banking. Islamic funds are banned from investing in companies associated with tobacco, alcohol or gambling considered taboo by Muslims.
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