Where is Malaysia's mega Islamic bank?
Industry executives agree in private that there are too many Islamic banks in Malaysia with a population of 27 million. This means that local Islamic banks, ideally, can merge and become bigger entities that can grow across borders.
IT LOOKS like we probably have to wait a little bit longer to find out who will win the two licences to set up mega Islamic banks in Malaysia. With a requirement of at least US$1 billion (RM3 billion) in capital, the announcement has been delayed since last year.
The two are set to be foreign-owned. News reports have talked about Bahrain's Al Baraka Banking Group's plan to head a group that will launch a US$10 billion (RM30 billion) Islamic bank.
Malaysia already has some 17 Islamic banks; 11 are local and the rest are units of big lenders like Standard Chartered, HSBC Holdings and Kuwait Finance House.
So why can't we have a Malaysian mega Islamic bank? Industry executives agree in private that there are too many Islamic banks in a country with a population of 27 million. This means that local Islamic banks, ideally, can merge and become bigger entities that can grow across borders.
This is not a new idea. Renowned Islamic Finance thought leader Rushdi Siddiqui has said that Malaysia needs to seriously look at having its own big Islamic bank if it wants to remain an industry leader.
"A mega Islamic bank needs to compete with the likes of CitiBank, HSBC, Standard Chartered, JPMorgan Chase, etc, and not their windows and subsidiaries for mega projects, advisory, underwriting, etc, in OIC (Organisation of Islamic Conference) and G20 (Group of 20) countries," he writes in his Islamic Finance 2.0 column in January.
It appears that there are moves being made to start the consolidation process. Khazanah Nasional Bhd holds 30 per cent of Bank Muamalat Malaysia Bhd and plans to sell this block as it doesn't consider it to be one of its main businesses.
Bank Islam, the country's oldest Islamic bank, which comes under the Pilgrims Fund, could be its partner. While it is still very early, it is something the industry sorely needs. It could also be a defining moment for the fund, better known as Tabung Haji, which has not had a good track record when it comes to its investments. Interestingly, Tabung Haji was set up in 1969, making it Malaysia's first Islamic financial institution, but I digress.
More importantly, the industry regulator needs to do more to encourage consolidation. In 2009, it allowed foreigners to buy up to 70 per cent of local Islamic banks and takaful operators. So far, no one has taken up the offer.
Perhaps, for our local players, there could be a combination of carrots and sticks, like an attractive tax cut accompanied with a higher capital requirement.
There will probably be those who would argue against consolidation, maybe to protect their independence. They may also warn of value-destroying mergers. But this misses the big picture. Islamic finance needs a global champion and we are unlikely to get this from Iran, the country with the most Islamic banking assets at over US$300 billion (RM900 billion), due to its strained relationship with the US. Iran's asset size triples Malaysia's Islamic asset size and more than doubles that of Saudi Arabia.
Efforts to develop Islamic finance over the last three decades have made Malaysia a true global Islamic finance hub. What we need to do now is to convince industry players that they need to take the next big step.
by Shahriman Johari
IT LOOKS like we probably have to wait a little bit longer to find out who will win the two licences to set up mega Islamic banks in Malaysia. With a requirement of at least US$1 billion (RM3 billion) in capital, the announcement has been delayed since last year.
The two are set to be foreign-owned. News reports have talked about Bahrain's Al Baraka Banking Group's plan to head a group that will launch a US$10 billion (RM30 billion) Islamic bank.
Malaysia already has some 17 Islamic banks; 11 are local and the rest are units of big lenders like Standard Chartered, HSBC Holdings and Kuwait Finance House.
This is not a new idea. Renowned Islamic Finance thought leader Rushdi Siddiqui has said that Malaysia needs to seriously look at having its own big Islamic bank if it wants to remain an industry leader.
"A mega Islamic bank needs to compete with the likes of CitiBank, HSBC, Standard Chartered, JPMorgan Chase, etc, and not their windows and subsidiaries for mega projects, advisory, underwriting, etc, in OIC (Organisation of Islamic Conference) and G20 (Group of 20) countries," he writes in his Islamic Finance 2.0 column in January.
It appears that there are moves being made to start the consolidation process. Khazanah Nasional Bhd holds 30 per cent of Bank Muamalat Malaysia Bhd and plans to sell this block as it doesn't consider it to be one of its main businesses.
Bank Islam, the country's oldest Islamic bank, which comes under the Pilgrims Fund, could be its partner. While it is still very early, it is something the industry sorely needs. It could also be a defining moment for the fund, better known as Tabung Haji, which has not had a good track record when it comes to its investments. Interestingly, Tabung Haji was set up in 1969, making it Malaysia's first Islamic financial institution, but I digress.
Perhaps, for our local players, there could be a combination of carrots and sticks, like an attractive tax cut accompanied with a higher capital requirement.
There will probably be those who would argue against consolidation, maybe to protect their independence. They may also warn of value-destroying mergers. But this misses the big picture. Islamic finance needs a global champion and we are unlikely to get this from Iran, the country with the most Islamic banking assets at over US$300 billion (RM900 billion), due to its strained relationship with the US. Iran's asset size triples Malaysia's Islamic asset size and more than doubles that of Saudi Arabia.
Efforts to develop Islamic finance over the last three decades have made Malaysia a true global Islamic finance hub. What we need to do now is to convince industry players that they need to take the next big step.
by Shahriman Johari
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