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KUALA LUMPUR : Malaysian Islamic banks are not making as much money as banks in the Persian Gulf despite having a higher growth rate in assets over the last 10 years, a report from rating agencies says.
The Malaysian Islamic banking sector's assets grew at a annual rate of 27 percent compared to the Gulf region's 11 percent over the same 10-year period, Standard and Poor's and Rating Agency Malaysia said in a joint report.
"Islamic banks in Malaysia are less profitable than their Gulf counterparts, when comparing ratios of preprovision net operating income to assets and pretax return on average assets," the report said.
Malaysia launched its Islamic financial sector in 1983 to provide products and services that comply with sharia or Muslim religious laws banning the earning of interest.
The report said Gulf Islamic banks have a strong comparative advantage in the type of Islamic customers they attract and they are more inclined to place their funds in interest-free deposit accounts.
"Such free funds significantly reduce Islamic banks' funding costs," it said.
Islamic banks in the Gulf also have higher gross income-to-asset yields and a less competitive operating environment, while the Malaysian market has long been dominated by conventional banks.
"Unless there are fundamental changes to the operating environments or market landscapes, this trend (of profitability) is expected to remain," the report said.
Standard and Poor's analyst Adrian Chee said Malaysia's Islamic banking sector has strong growth prospects with Gulf Islamic banks such as Kuwait Finance House and Qatar Islamic Bank setting up shop.
"They want to come into a country with growth potential and Malaysia actually gives them that. And Malaysia even gives them the platform to expand regionally," Chee told AFP.
Malaysia is trying to carve an Islamic banking niche for itself to tap billions of dollars of Muslim funds which are turning away from Western countries after the 2001 terror attacks, and amid Middle East uncertainties, analysts say.
Malaysia has issued Islamic banking licenses to foreign players, while foreign firms are allowed to own up to 49 percent of equity in the Islamic banking and takaful industries.
Total worldwide assets of Islamic financial institutions exceed an estimated 250 billion dollars and are growing 15 percent annually, according to the International Monetary Fund.
- AFP /ct
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