The Jakarta Post
Moody's Investors Service says ASEAN is ripe for Islamic banking, but various challenges are evident even though authorities are putting measures in place to develop this sector.
"Currently, Malaysia and Indonesia are actively making regulatory efforts to nurture Islamic banking and this will drive growth in a region that has a significant Muslim population," said Simon Chen, Moody's vice president and senior analyst.
"However, translating these favorable conditions into actual growth requires government commitment to develop the Islamic banking sector and that is why the efforts being made by Malaysia and Indonesia are important."
Moody's conclusions are contained in its just-released report, "Islamic Banking -- ASEAN: Regulatory push will drive sector growth, building on a sound foundation".
The report said low Islamic financing penetration in the region was caused by the fact that most governments have not actively sought to develop the sector, which had resulted in a low level of public awareness and a lack of incentive for banks to devote resources to develop it.
It noted that Malaysia aimed to boost its share of Islamic banking assets to 40 percent by 2020 from 32 percent at the end of August 2018, while Indonesia was seeking to increase it to 15 percent by 2023 from 6 percent at the end of July 2018.
Robust economic environments and banks' sound solvency and liquidity would help conventional banking groups lead the growth of Islamic banking in the region like in Malaysia and Indonesia, according to Moody’s. (bbn)