,Malaysia

Demand for Islamic banking set to soar in South Asia, SEA

The large untapped population in these regions and government support will drive long-term expansion.

Islamic banking in South and Southeast Asia are set to take flight in the recovery phase following the pandemic, as demand increases from young, growing populations and with long-term growth supported by governments’ efforts, according to a report by Moody’s Investors Service.

Whilst profitability of these Islamic banks weakened in 2020, they have sufficient capital and liquidity to meet demand for financing, which will rise as economies recover from the COVID-19 fallout, notes Moody’s analyst Tengfu Li.

"Although Islamic banks' profitability in these regions weakened in 2020, their capital buffers remain mostly robust, supported by government measures to soften the impact of the coronavirus outbreak. Strong capitalization will in turn enable Islamic banks to meet increased demand for financing as economies recover," said Li.

Islamic financing is expected to continue expanding faster than conventional loans across South and Southeast Asia, increasing the share of Islamic financing in total financing.

Long-term expansion of Islamic banking will be driven primarily by the prime-age populations—people aged 25-54 years—especially given these countries' large untapped market.

Key to the growth of Islamic banking are efforts by governments of major Islamic banking markets in South and Southeast Asia to develop the sector, notes Li, given their role in increasing financial inclusion and inherent alignment with environmental, social and governance principles, which are growing in relevance amid the pandemic.

Additionally, Islamic banking is part of a halal ecosystem governments want to create to spur economic development.

Liquidity has also eased or remained stable because of strong growth in low-cost deposits as consumers and businesses cut spending, Li added. This is also supported by central banks relaxing their reserve requirements and carried out open market operations.

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!

Banks should have enough buffers and find climate transition risks manageable.
The products are now available at Eccellente by HAO Market in Singapore.
Institutional clients may accelerate time-to-market financial applications.
This was thanks to a rise in loans made to the service sector during the period.
Discussions between the two banks are at the preliminary stage.
But it reported weaker quarterly performance, largely due to its $309.8m Q3 expense.
Uncertainty over Omicron's impact may drive this slowdown.
Only 2 in 10 Singapore micro-multinationals think banks offer value for money.
The Internet boom has pushed 9 out of 10 digital merchants to accept digital payments.
It’s not as urgent as other markets with credit under-penetration, says TMRW Digital Group CCO.
The move is part of the BSP’s Digital Payments Transformation Roadmap.
Internet economy in SEA has propelled digital payments further.
The market is expected to top $83.2b in four years’ time.
The 3.26% interest rate average is its highest since November 2018.