Photo by CK Yeo via Unsplash.

APAC Islamic banks continue upward trajectory with lift from new players

The launch of new Islamic players will improve access to financial services, says S&P.

Islamic banks in the Asia Pacific will enjoy steady expansion and a broadly stable asset quality, with Malaysia retaining the top spot, reports S&P Global Ratings.

Financing growth remains favorable for Islamic banks in the region, noted S&P credit analyst Nikita Anand. This is thanks to “stable economic conditions” in core Islamic banking markets of Malaysia and Indonesia. 

"The launch of new Islamic banks in Malaysia and other Asia-Pacific markets this year could improve access to financial services for underserved regions and segments, such as small businesses," Anand added.

Malaysia is expected to remain the biggest Islamic banking market in the region, accounting for two thirds of the sector’s total assets of about $400b, S&P said.

ALSO READ: Why tech is not the focal point of banks’ digital transformations

It’s not all rosy on the horizon, however. Some large Islamic banks in Malaysia could find it difficult to maintain their overall high growth if their retail deposit growth doesn't keep pace, Anand warned. 

Banks are advised to diversify into other funding sources such as investment accounts or rely on wholesale deposits, which are generally more expensive, she added.

Indonesia, meanwhile, is likely to be a growth hotspot given its untapped potential, S&P said.

Apart from these two markets, Bangladesh is also named as having potential. However, a liquidity shortage and weak external demand will weigh on financing growth over the next one to two years, S&P warned.

ALSO READ: How banks should rethink pricing

"Risks for Asia-Pacific Islamic banks are tilted toward the downside, due to higher-for-longer rates and rising geopolitical tensions," said Anand.

“Small businesses and low-income households are vulnerable to sustained higher costs of living and rates. In such a scenario, we would expect both financing demand and asset quality to falter. Banks' ample capital and provisions provide a buffer against rising stress,” she said.

Join Asian Banking & Finance community
Since you're here...

...there are many ways you can work with us to advertise your company and connect to your customers. Our team can help you dight and create an advertising campaign, in print and digital, on this website and in print magazine.

We can also organize a real life or digital event for you and find thought leader speakers as well as industry leaders, who could be your potential partners, to join the event. We also run some awards programmes which give you an opportunity to be recognized for your achievements during the year and you can join this as a participant or a sponsor.

Let us help you drive your business forward with a good partnership!


ZA Bank’s Devon Sin on why Web3 is key to HK’s growth
The bank has expanded services to cater to stablecoin issuers and Web3 companies. 
Retail Banking
CIMB Niaga leads the way in captivating Indonesia’s youth
The bank’s digital solutions are winning over younger generations with 3.2M mobile users and 96% digital transaction rate in 2023.
BCA sets benchmark in Indonesia’s microfinance sector
Innovative approaches reflect the bank’s commitment to pushing financial inclusion and fostering economic growth.