Islamic banking, takaful institutions remain resilient

Amid a challenging economic environment, Islamic banking and takaful institutions have remained resilient, maintaining healthy financial buffers.Bank Negara Malaysia (BNM), in its Financial Stability and Payment Report 2016 released today, said total assets of the Islamic banking industry grew by 8.3 per cent in 2016 (2015: 11.5 per cent) to account for 28 per cent of the overall banking system (2015: 26.8 per cent).

BNM said investment intermediation activities saw encouraging growth, with investment accounts (IAs) managed by Islamic banks increasing to RM73.7 billion to account for 12.2 per cent of total Islamic deposits and IAs within the Islamic banking system in 2016 (2015: RM47.1 billion, 8.6 per cent).

The takaful industry also sustained its growth as reflected in higher net takaful contributions of RM7.5 billion in 2016 (2015: RM6.8 billion) to account for 14.6 per cent of total industry premiums and contributions, it said.

"The bank continues to work with the industry and relevant authorities to encourage more innovative applications of syariah contracts to meet the diverse investment and funding needs of the economy," it said.

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The central bank said financing by the Islamic banking industry grew by 11 per cent to RM549.5 billion during the year, underpinned by sustained demand for syariah-compliant financial solutions from the household sector.

Demand for syariah-compliant financing from the retail segment was expected to continue drive the growth of the Islamic banking industry, given the growing consumer preference for the increasingly competitive Islamic financial products and services, it said.

BNM said by by 2020, syariah-compliant financing was expected to account for 40 per cent of total financing in Malaysia.

For the takaful industry, it said, greater focus will be directed towards developing takaful protection and risk management solutions to support trade and business activities through collaborative initiatives involving selected institutions.

It said the gross contribution of new family takaful business increased by 12.5 per cent during the year to account for 76.2 per cent of total takaful business in Malaysia (2015: 74.9 per cent).

Term products, comprising mainly financing-related products, remained the largest contributor to new family takaful business with a share of 57.8 per cent of total gross family takaful contributions, it said.

Over the next two years, BNM said, the development of the Islamic finance industry would continue to focus on enabling greater business diversification, driven by technology, to sustain its growth trajectory and deliver better customer value.

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"Another important development priority is in the area of trade finance facilitation where the BNM aspires for syariah-compliant trade financing to support 10 per cent of total trade in the next three years," it said.

The central bank said efforts to encourage a stronger focus on value-based intermediation as a core premise of Islamic financial solutions shifted into sharper focus during the year.

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