S&P Global: Islamic banks to drive overall banking growth

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KUALA LUMPUR: S&P Global Ratings expects the overall banking growth in Malaysia to be mainly driven by Islamic banks which have been growing at a robust pace in the past decade.

The credit rating agency said that the Malaysian banking sector loan growth was projected to be around 6% in 2021, up from 3.4% in 2020, while Islamic banking could easily double the loan growth at 10 to 12% or even higher.

South and South-East Asia financial services ratings associate director Nancy Duan said the financing growth for Islamic banks was expected to be driven by household credit, such as mortgages and hire purchase credit, and less likely from personal loans and credit cards this year, given the higher credit risk settlement.

“Loan growth would face some uncertainties, with three downside risks including from Malaysia’s economic growth, asset quality and its liquidity position, ” she said during a webinar entitled Islamic Finance 2021-2022: Towards Sustainable Growth yesterday.

Duan said a reassessment of the gross domestic product (GDP) growth might be required as Malaysia was currently battling a resurgence of Covid-19 cases which had led to a two-week lockdown.

“There could be a downward revision on the GDP forecast this year, and this could result in adjusting the banking sector growth as well, ” she noted.

On asset quality, she sais Malaysian Islamic banks generally had a larger share of exposure to the household segment and micro small and medium enterprises (MSMEs) compared with their conventional peers.

Hence, Malaysian Islamic banks have a higher risk to fall under vulnerable credit during pandemic headwinds.

“With the government rolling out assistance to the bottom 40% household income (B40) and MSME groups, there would be a delay in the asset quality crystallisation of the portfolio.

“Therefore, we believe that Islamic banks would be highly resistant to lend to some segments due to the uncertainties, ” she said.

On another note, Duan said the liquidity position for Islamic banking was tighter compared with conventional peers as the current account and savings account ratio was seen benefiting conventional and large integrated banking groups, and this could reduce the Islamic segment lending appetite.

On the Covid-19 crisis, she said the pandemic had brought benefits in terms of digital acceleration adoption for Islamic banks. — Bernama



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