MALAYSIA: With the deadline to reclassify banking deposits into either Islamic deposits or investment accounts fast approaching (mid-year), Malaysian Islamic banks are in the midst of rolling out their re-engineered products as well as introducing new solutions to meet the requirements of the Islamic Financial Services Act 2013 (IFSA 2013). While there has been some concern over loss of market share during this period of transition, the country’s pioneering Shariah financier, Bank Islam Malaysia, is confident that income streams would not be negatively affected and is optimistic that business would continue to grow following full implementation of the above-mentioned regulation.
The bank today expanded its suite of products with three new investment accounts (Special Investment Account Mudarabah (SIA Mudarabah), Waheed Investment Account Wakalah (WIA Wakalah) and Al-Awfar Account), becoming the first player in the country to roll out products in compliance with IFSA 2013. Two out of the three (SIA Mudarabah and WIA Wakalah) are designed for corporate customers as Bank Islam seeks to bolster its corporate line and reduce dependency on its retail business. The bank`s chief strategy officer Hizamuddin Jamalludin confirmed to the media that the bank was looking to diversify its portfolio to boost its corporate financing assets and retail financing assets ratio to 30:70 from the current 24:76.
Admitting that the bank’s consumer operations have consistently outperformed its corporate business which makes it challenging to augment the construct of its portfolio, Hizamuddin said that Bank Islam is keen to attract large corporates in order to capitalize on the value chain or chain of vendors. He added that the bank is targeting a financing growth twice that is projected of the wider industry on the back of the group’s current balance sheet: 15% against 7-8%.
Previously, Mudarabah and Wakalah products were considered as deposit accounts; however, the Malaysian government is moving towards enhancing the Shariah compliance of its Islamic financial industry which culminated in the IFSA 2013. Under the new regulation, Mudarabah, Wakalah and Musharakah instruments will be distinguished as investment products to be backed by the bank’s portfolio of assets, instead of the Malaysia Deposit Insurance Corporation.