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BSI's market domination to diminish as sharia banking flourishes
More major sharia banks may emerge, as the sector is predicted to exceed 10 percent banking market share in the country by 2026.
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Cashing in: A customer of Bank Syariah Indonesia (BSI) withdraws cash at an ATM in Meulaboh, West Aceh regency, Aceh, on May 14, 2023. The bank’s president director Hery Gunardi said the bank’s services had resumed after a series of cyberattacks from May 8 to May 11. (Antara/Syifa Yulinnas)
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ndonesia’s sharia banking sector is projected to flourish over the next couple of years, allowing small and medium lenders to grow, which will be beneficial to the country as it will reduce the concentration on a few dominant players.
Indonesian sharia banks are expected to grow at a rate of between 15 and 18 percent, according to S&P Global Ratings, much faster than their conventional counterparts, which are only growing by 10 percent annually.
The rate also exceeds the pace of global Islamic financing, which is projected to expand by 8 percent over the next two years.
"Consumer financing is a major driver of that growth, and will stay robust for Indonesian sharia banks this year," Nikita Anand, associate director of financial institutions ratings at S&P Global Ratings, said in a webinar on Wednesday.
The report also stated that market share of sharia banks in the country, which currently sits at around 7 percent in terms of total financing, will exceed 10 percent by 2026.
Currently, the market is dominated by state-owned Bank Syariah Indonesia (BSI), which is also the largest sharia lender in the country, controlling more than half of the market share due to its Rp 313 trillion (US$21.09 billion) in assets.
Adiwarman Azwar Karim, a sharia economy analyst who is also the vice president commissioner of BSI, said that local sharia banks would likely exceed S&P Global Ratings' forecast as lenders are growing at a much faster pace than before.
