IslamicFinance.de

In #Malaysia Islamic investment accounts (IA) have grown at a strong pace since they were introduced in 2015. Bank Negara’s latest monthly banking statistics show that IAs have since grown to RM74.2 billion as at February this year, accounting for 13% of total liabilities within the Islamic banking system. According to Simon Chen, senior analyst at Moody’s Investors Service, by 2020 IAs will probably account for some 16% of the Islamic banking system’s total liabilities. An important feature of IAs is the sharing of risk between the bank and the account holder. For an investor, IAs are attractive because they offer much higher returns than a deposit account. But, unlike a deposit account, the principal amount in an IA is not guaranteed by Perbadanan Insurans Deposit Malaysia. According to Chen, a key issue that remains is whether the loss-sharing mechanism in IAs will be honoured by banks in case of actual losses. A significant loss to test the resilience of this regime has yet to occur.

According to Moody's Investors Service, the growth of shariah-compliant investment accounts at Malaysian banks will remain strong over the next three to five years. Moody's Vice President, Simon Chen, said Malaysian banks have strong incentives to promote the growth of such investment accounts because they provide capital benefits. He added that concerns also exist over the untested state of loss-sharing mechanisms in the accounts. The robust growth of shariah-compliant investment accounts in Malaysia began in July 2015 following the implementation of the Islamic Financial Services Act 2013. By February 2017, these accounts had grown to RM74.2 billion, or 13%, of total banking system liabilities. On the question of risk, Moody's said that a significant loss event to test the resilience of this regime has yet to occur.

Moody's Investors Service says that the liquidity coverage ratios of Islamic banks in key Asian and GCC countries highlight sound liquidity profiles and broad compliance with Basel III regulatory requirements.
"In the report, we highlight that a key driver of LCR performance is the funding profile of banks and, in this context, over-reliance on corporate deposits and unsecured wholesale funding means higher potential liquidity pressures," says Simon Chen, a Moody's Vice President and Senior Analyst. "However, banks with a greater proportion of retail deposits that are considered more 'sticky', typically display stronger LCRs," adds Chen.