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Islamic Banking : Malaysia Perspective

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Islamic Banking : Malaysia Perspective Workshop on Islamic Finance in the National Accounts Beirut, Lebanon 24 – 26 October 2017 Department of Statistics Malaysia 1 Outline • Introduction • Development of Islamic Finance in Malaysia • Islamic Banking and Takaful Statistics in Malaysia • The Compilation of Islamic Finance Value Added: The Malaysian Experience • Issues and Challenges • Conclusion 2 Malaysia Financial System & Structure Financial System Non-Bank Money Market / Banking System Financial Capital Market Offshore Foreign Exchange Intermediaries Foreign Bank Negara Provident Fund Labuan Exchange Stock / Equity Malaysia (EPF) Offshore /Money Changer Banking Insurance / Bond / Sukuk Institutions Takaful Development Financial Institutions Derivatives Saving Institutions 3 Malaysia Industrial Classification of Financial Sector 4 Malaysia Industrial Classification of Financial Sector 5 Malaysia Industrial Classification of Financial Sector 6 Islamic Banking Governance Islamic Banking Act 1983 • “Islamic banking business” means banking business whose aims and operations do not involve any element which is not approved by the Religion of Islam; Islamic Financial Services Act 2013 • An institution shall at all times ensure that its aims and operations, business, affairs and activities are in compliance with Shariah. •Securities Commission (Amendment) Act 2015 And Capital Markets And Services (Amendment) Act 2015 •Capital Markets and Services Act 2007 •Securities Commission Malaysia Act 1993 •Securities Industry (Central Depositories) Act 1991 •Demutualisation (Kuala Lumpur Stock Exchange) Act 2003 (pdf) •Securities Industry Act 1983 •Futures Industry Act 1993 •Comparison Between the Securities Industry Act 1983 and the Capital Markets and Services Act 2007 •http://www.bnm.gov.my/index.php?ch=en_policy&pg=en_policy_banking 7 Malaysia Islamic Banking - Development 1983 - First Islamic bank established (Bank Islam Malaysia Berhad) 1993 - Introduction of Interest-free banking 1969 - Pilgrims 1984 – First full-fledge takaful Scheme or Skim Management Fund and company established (Syarikat Perbankan Tanpa Faedah Board of Malaysia Takaful Malaysia Bhd ) 1. Islamic Banking Act 1983 (SPTF) - ‘Islamic window ’ 2. Government Investment Act 1983 1996 - New Financial Disclosure (GP8) 1. Income recognition for SPTF from cash basis to 1994 - Islamic Interbank accrual basis Money Market 2. SPTF allowed to set up full-fledged Islamic Banking branch 3. Establishment of Syariah Advisory Council (SAC) 8 Malaysia Islamic Banking - Development 2004 – Three licenses issued to foreign Islamic bank: 2006 1999 - Bank 1. Kuwait Finance House • International Centre for Muamalat Malaysia 2. Al-Rajhi Banking & Investment Education in Islamic Berhad started Corporation Finance (INCEIF) operation as second 3. A consortium of Islamic • Malaysia International Islamic bank financial institutions (Qatar Islamic Islamic Financial Centre Bank, RUSD Investment Bank Inc. (MIFC) and Global Investment House) 2010 Onwards 2011 Onwards 2008 - Issuance • NKEA - National Key International Islamic Economic Areas – NKEA#5 Banking licenses Financial Services, EPP 10: • Financial Sector (IIB) Becoming the Indisputable Blueprint 2011 - Global Hub for Islamic 2020 Finance 9 SHARE OF FINANCE TO MALAYSIA GDP Share of Finance and Insurance to GDP at Constant prices 2010 YEAR 2010 2011 2012 2013 2014 2015 2016 FINANCE 5.8 5.9 5.9 5.7 5.5 5.2 5.0 INSURANCE 1.7 1.7 1.9 1.9 1.8 1.7 1.7 TOTAL FINANCE & 7.5 7.6 7.8 7.6 7.3 6.9 6.8 INSURANCE 10 Islamic Banking Statistics 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Number of 43 42 47 54 54 55 56 56 55 54 54 54 Institutions Commercial 27 22 22 22 22 23 25 27 27 27 27 27 Bank Merchant/Inve 10 10 14 15 15 15 15 13 12 11 11 11 stment Bank Islamic Bank 6 10 11 17 17 17 16 16 16 16 16 16 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Office 2,244 2,139 2,245 2,271 2,298 2,312 2,435 2,481 2,479 2,494 2,500 2,498 Network Commercial 2,072 1,952 1,968 1,979 1,999 2,006 2,050 2,056 2,029 2,045 2,048 2,019 Bank Merchant/Inve 19 19 120 131 131 133 133 148 135 135 119 130 stment Bank Islamic Bank1 766 1,167 1,272 2,039 2,087 2,102 2,147 2,171 2,177 2,192 2,206 2,197 1 Includes Islamic bank branches that are shared with conventional bank branches p Preliminary 11 source : Bank Negara Malaysia Islamic Banking Statistics Number of Employees 140,000 120,000 9,214 9,751 10,251 9,402 8,511 8,922 6,702 7,829 9,577 9,610 8,814 9,122 9,060 5,774 8,972 8,606 8,561 8,129 7,959 100,000 5,151 7,721 4,434 3,522 2,625 80,000 60,000 107,541 103,089 106,274 106,006 106,783 101,718 96,146 99,593 98,846 100,089 89,047 91,741 40,000 20,000 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016p Commercial Bank Merchant/Investment Bank Islamic Bank source: Bank Negara Malaysia 12 Islamic Banking Statistics – Asset 1,000 28.0 30.0 26.8 900 25.0 25.5 23.8 25.0 800 22.4 20.7 700 19.6 20.0 17.4 600 15.5 14.4 500 15.0 11.3 400 RM BillionRM 10.0 (%) Percentage 300 200 5.0 100 112 171 204 251 303 351 435 495 558 615 685 742 0 0.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016p Total Asset 1 % of total assets in entire banking system1 1 Including development financial institutions under the Development Financial Institutions Act 2002 p Preliminary 13 source: Bank Negara Malaysia Islamic Banking Statistics - Financing 700 33.0 35.0 Financing refers to assets / financing funded 31.3 by investment accounts 29.2 600 27.5 30.0 25.8 24.3 500 22.7 25.0 21.6 18.9 400 17.3 20.0 16.0 300 15.0 12.1 RM BillionRM Percentage (%) Percentage 200 10.0 100 5.0 67 103 122 150 187 222 268 315 371 428 495 550 0 0.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016p Total Financing1 % of total financing in entire banking system 1 1 Including development financial institutions under the Development Financial Institutions Act 2002 p Preliminary 14 source: Bank Negara Malaysia Islamic Banking Statistics - Deposits 700 35.0 31.8 30.0 600 28.2 30.0 26.7 25.6 24.4 500 22.6 25.0 20.7 400 18.8 20.0 16.8 14.7 300 15.0 11.7 RM BillionRM Percentage (%) Percentage 200 10.0 100 5.0 84 127 155 194 236 278 341 386 436 495 503 529 0 0.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016p Total Deposits1 % of total deposits in entire banking system1 1 Including development financial institutions under the Development Financial Institutions Act 2002 p Preliminary 15 source: Bank Negara Malaysia Islamic Banking Statistics For the Calendar year Pre-tax 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016p Profit RM million Banking 12,949 17,702 19,170 16,991 22,959 26,196 29,219 29,758 31,929 28,996 32,221 System1 Commercial 12,083 15,655 18,489 15,759 22,207 25,095 28,199 28,766 30,756 28,263 31,451 Bank1 Investment 866 2,046 681 1,232 752 1,101 1,020 992 1,173 733 770 bank Islamic Bank 1,612 1,894 1,811 2,641 3,199 3,027 4,852 4,913 5,112 5,034 5,576 Total As at end Capital Ratio Ratio 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016p Banking 13.5 13.2 12.6 15.4 14.8 15.7 15.7 14.9 15.9 16.6 16.5 System Islamic bank 17.0 15.8 14.0 15.6 15.5 15.0 14.5 15.1 16.2 16.1 16.6 Total capital ratio refers to the ratio of a bank's capital to its risk 1 Includes Islamic Banks p Preliminary 16 source : Bank Negara Malaysia List of Banking Institutions with Islamic Business as at August 2017 Commercial Banks Islamic Banks Investment Banks 17 Islamic Banking Statistics - Takaful and Conventional Insurance 300,000 30.0% 27.8% 250,000 25.0% 19.9% 200,000 18.3% 20.0% 16.9% 17.4% 17.7% 15.1% 150,000 15.0% 12.4% Percentage Percentage 12.9% 13.5% 9.9% RM RM Million 12.1% 100,000 11.4% 11.8% 8.7% 8.6% 8.7% 10.0% 9.6% 7.3% 50,000 7.0% 7.0% 6.7% 5.0% 5.4% 4.3% 0 0.0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016p Takaful Fund Assets Conventional Insurance Fund Assets Takaful Fund Assets Growth Conventional Insurance Fund Assets Growth source : Bank Negara Malaysia 18 Islamic Banking Statistics - Takaful As at end 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 No. of Registered 5 8 8 8 8 9 11 12 12 11 11 11 Takaful Operator No. of Agents 14,059 15,194 43,843 60,197 88,895 74,089 100,308 105,552 77,804 64,106 65,387 64,200 Family 11,781 11,188 32,987 44,222 55,898 42,698 66,338 68,009 58,984 50,529 50,334 49,836 General 2,278 4,006 10,856 15,975 32,997 31,391 33,970 37,543 18,820 13,577 15,053 14,364 No.
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