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Malaysia : STRONG growth in ISLAMIC financing in MALAYSIA

July 2, 2014

Moody's Investors Service expects strong growth trends for Islamic financing in Malaysia to continue, underpinned by the demand from the Muslim population and the government's strategy.

Moody's Global Head for Islamic finance Khalid Howladar said that the Malaysian government's was to increase Islamic financing to 40% of total domestic financing by 2020 from 24%.

A record of RM3.25 billion (US $1 billion) of ringgit-denominated Sukuk issued by Malaysian Islamic banks in 2014 was driven by rapid asset growth, which led to funding and capital needs.

Malaysia's strong growth trends continue and as a result of rapid asset growth, Islamic banks are expected to become a contributor to sukuk volumes.

The 20% compound annual growth in Islamic financings has outpaced the 16% growth in Islamic deposits, which has created a funding gap.

So over 95% of the banks' funding mix is composed of short-term deposit funding, the banks are in need of amounts of stable long-term funding, sukuk issuances provides such funding.

Sukuk issuances were expected to rise, if Islamic banks maintained their current risk-adjusted profitability to support their internal capital growth of 8% per annum, and risk-weighted assets grow at 11% per annum.

The banks need an additional RM2.5 billion in new equity for qualifying securities such as Basel III compliant Sukuk by 2016 to maintain capital ratios at current levels.

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Source: TendersInfo (India)

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