Fitch Ratings Expects a Moderate Growth for Malaysia’s Islamic Financing Industry in 2023 but Outperform Conventional Banks
Fitch Ratings has forecasted that Malaysia’s Islamic financing growth is expected to slow down in 2023 as higher financing rates could dampen demand. Despite this, the rating agency anticipates that the growth rate will still surpass that of conventional banks, thanks to the country’s supportive regulatory environment and Islamic finance ecosystem, as well as the shift towards Sharia-compliant services.
Malaysia has seen a rise in Islamic financing growth to a five-year high of 13% in 2022, driven by a sustained increase in working-capital loans and a resilient household sector. As a result, Islamic financing now accounts for 41% of the country’s total banking system loans, up from about 38% in 2021. This cements Malaysia’s position as the world’s third-largest Islamic banking market. Additionally, Malaysia has a well-established sukuk market, with sukuk making up about 64% of local outstanding issuance as of end-November 2022.
While a higher-rate environment and moderation in economic growth are expected to temper momentum and weigh on Islamic banks’ financing quality in 2023. Fitch Ratings also believes any asset-quality deterioration will be manageable due to adequate provisioning levels and a still-expanding economy. GDP is forecast to expand by 3.5% during the year.
Islamic banks’ capital levels remain healthy, with a system common equity Tier 1 ratio of 14.2% as at end-2022. Funding conditions may ease further this year, as the Malaysian central bank levels off on monetary tightening and financing growth moderates.
Overall, Malaysia’s Islamic finance sector remains robust, with strong growth prospects and a supportive regulatory environment. The industry’s ability to weather challenging economic conditions bodes well for its long-term sustainability and growth potential.
Click here to find out more: http://www.fitchratings.com/research/banks/malaysia-islamic-financing-growth-to-continue-outperforming-conventional-banks-09-02-2023
