New era for Islamic banking in Malaysia

KUCHING: The lslamic banking industry in Malaysia is going through a new phase of development with the implementation of the Islamic Financial Services Act 2013 (IFSA).

Ratings agency RAM Rating Services Bhd (RAM Ratings) says Ithe IFSA repealed the Islamic Banking Act 1983 and the Takaful Act 1984 while incorporating elements from the Payment System Act 2003 and the Exchange Control Act 1953.

The IFSA enhances the previous regulatory framework, requiring Islamic banks to comply with syariah and operational standards issued by Bank Negara Malaysia (BNM) and the International Syariah Research Academy in all facets of their business objectives and operations.

RAM Ratings said this ensures that syariah principles are truly adopted in Islamic contracts and all transactions, providing a holistic practice of Islamic banking.

Malaysia’s competitive advantage in Islamic finance is well acknowledged and continually strengthened by a conducive environment of progressive regulations, attractive tax regimes and, most crucially, supportive authorities.

The credit rating agency added the Malaysian Islamic banking industry’s assets have almost doubled in the last five years, expanding to RM423 billion as at end of February 2014 compared with RM220 billion as at end of December 2009.

RAM Ratings noted that those assets accounted for 21 per cent of the banking system’s assets.

RAM Ratings observed that gross financing in Islamic banking grew (20 per cent year-on-year(y-o-y) and continued to outpace deposits which grew 14 per cent (y-o-y) last year.

It said financing for the purchase of vehicles constituted the largest portion (23 per cent), trailed by housing (22 per cent) and working capital (22 per cent).

Islamic banking system’s financing-to-deposits ratio rose to 82 per cent as at end of February 2014 against 76 per cent as at end of December 2012.

It said this might signal greater competition for Islamic deposits in the future as the industry continues to grow.

In terms of asset quality, RAM Ratings observed that the Islamic banking system’s gross impaired-financing (GIF) ratio stood low at 1.4 per cent as at end of February 2014 compared with 1.7 per cent as at end-of December 2012. 

(Borneo Post Online / 10 April 2014)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Malaysia IFSA to diversify Islamic investment products -bankers

A provision under Malaysia's Islamic Financial Services Act 2013 (IFSA) will prompt Islamic banks to diversify the investment products which they offer to customers, bank executives said.

Islamic banks will have until June next year to segregate Islamic deposits from investment accounts and explain the difference to customers. Deposits guarantee customers their principal, while investment accounts do not.

"The differentiation will allow the institutions to develop a wider range of products, for both classifications, to meet the diverse needs," the Association of Islamic Banking Institutions Malaysia (AIBIM) said in a statement on Tuesday.

Banks will incur some costs in educating staff and customers on the distinction.

"Call centers and people on the front line must be ready to answer queries," AIBIM president and Bank Muamalat Malaysia chief executive Redza Shah Abdul Wahid told reporters. AIBIM, which has 24 member banks, has been tasked with overseeing the transition under IFSA.

"At the end of the day, it's a major exercise undertaken by the industry to be able to transition efficiently," said AIBIM council member and CIMB Islamic Bank chief executive Badlisyah Abdul Ghani.

A clearer distinction between deposits and investment accounts will allow banks to become more creative in designing the accounts; for example, they may offer more products that use liquid assets such as sukuk, equities and commodities as the underlying investment.

"We will sell this product only to sophisticated investors, not just the man on the street," said Badlisyah.

(Reuters / 25 March 2014)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Malaysia: Takaful operators to use Islamic Financial Services Act (IFSA) grace period to ensure growth

PETALING JAYA: Takaful operators like Syarikat Takaful Malaysia Bhd and Takaful Ikhlas Sdn Bhd, a unit of MNRB Holdings Bhd, are aggressively strategising their operations to ensure profitable growth and taking advantage of the five-year time frame given to composite takaful players to fully comply with the new Islamic Financial Services Act (IFSA).

Under the Financial Services Act (FSA) and IFSA, which came into force on July 1, composite insurers and takaful players would be, among others, required to split their life and general insurance businesses under separate licences.

Takaful Malaysia group managing director Datuk Mohamed Hassan Kamil told StarBiz that as takaful operators are given the five-year time frame by Bank Negara to fully meet the terms of the new Act, the company would be devising and evaluating an array of potential options to achieve more efficient solutions from the capital management and shareholder return perspectives.

“We would review and evaluate all this. Hence, it is unlikely for the changes to materialise in the current financial year. The takaful industry players have yet to digest the full breadth of the IFSA to decide what would work best for them, going forward, especially towards sustainable growth of the takaful markets. This would definitely take time, as financial institutions need to better understand the application of the IFSA,” he added.

On whether the Act would take a hit on Takaful Malaysia’s bottomline in view of the split in operations of its family (life) and general businesses, Hassan said although there would be potentially higher cost initially due to start-up costs, in the long run, it would benefit the company and consumers as a whole, as the company would be more focused in terms of strategic planning, management, cost control and enhanced customer service. The capital position too would be further strengthened, he noted.

RHB Research, in an earlier report, said that the new ruling to split the life and general insurance businesses could have a “huge impact” on insurance firms, especially takaful players like Syarikat Takaful Malaysia and Takaful Ikhlas.

It added that the impact would be felt more deeply in the takaful industry due to the higher number of composite licences issued to them compared with their conventional insurance counterparts.

Meanwhile, Takaful Ikhlas president and chief executive officer Abdul Latiff Abu Bakar said while the split timeline given to comply was within five years, the company was looking more towards compliance with the other requirements first, of which the deadline for compliance was within a year.

“We are currently at the gap/impact analysis stage. As far as business is concerned, Takaful Ikhlas would continue to focus on enhancing its family agency business, of which new investment link products were just recently launched. It is too premature to comment on the capital and profitability.

(The Star Online / 23 July 2013)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Malaysia: Financial Services Act 2013 and Islamic Financial Services Act 2013 Come Into Force

The regulatory and supervisory framework of Malaysia enters a new stage of its development as the Financial Services Act 2013 (FSA) and Islamic Financial Services Act 2013 (IFSA) come into force on 30 June 2013.

The FSA and IFSA is the culmination of efforts to modernise the laws that govern the conduct and supervision of financial institutions in Malaysia to ensure that these laws continue to be relevant and effective to maintain financial stability, support inclusive growth in the financial system and the economy, as well as to provide adequate protection for consumers. The laws also provide Bank Negara Malaysia with the necessary regulatory and supervisory oversight powers to fulfil its broad mandate within a more complex and interconnected environment, given the regional and international nature of financial developments. This includes an increased focus on preemptive measures to address issues of concern within financial institutions that may affect the interests of depositors and policyholders, and the effective and efficient functioning of financial intermediation.

It is important that Malaysia's regulatory and supervisory system is adequately equipped to respond effectively to new and emerging risks so that confidence in the financial system is preserved and that the critical financial intermediation activities which are vital to the economy are not disrupted. The FSA and IFSA amalgamate several separate laws to govern the financial sector under a single legislative framework for the conventional and Islamic financial sectors respectively, namely, the Banking and Financial Institutions Act 1989 (BAFIA), Islamic Banking Act 1983, Insurance Act 1996 (IA), Takaful Act 1984, Payment Systems Act 2003 and Exchange Control Act 1953 which are repealed on the same date.

Key features of the new legislation include:

• Greater clarity and transparency in the implementation and administration of the law. This includes clearly defined regulatory objectives and accountability of Bank Negara Malaysia in pursuing its principal object to safeguard financial stability, transparent triggers for the exercise of Bank Negara Malaysia's powers and functions under the law, and transparent assessment criteria for authorizing institutions to carry on regulated financial business, and for shareholder suitability;

• A clear focus on Shariah compliance and governance in the Islamic financial sector. In particular, the IFSA provides a comprehensive legal framework that is fully consistent with Shariah in all aspects of regulation and supervision, from licensing to the winding-up of an institution;

• Provisions for differentiated regulatory requirements that reflect the nature of financial intermediation activities and their risks to the overall financial system;

• Provisions to regulate financial holding companies and non-regulated entities to take account of systemic risks that can emerge from the interaction between regulated and unregulated institutions, activities and markets. The Minister of Finance may subject an institution that engages in financial intermediation activities to ongoing regulation and supervision by Bank Negara Malaysia if it poses or is likely to pose a risk to overall financial stability;

• Strengthened business conduct and consumer protection requirements to promote consumer confidence in the use of financial services and products;

• Strengthened provisions for effective and early enforcement and supervisory intervention

The new laws will place Malaysia's financial sector, encompassing the banking system, the insurance/takaful sector, the financial markets and payment systems and other financial intermediaries, on a platform for advancing forward as a sound, responsible and progressive financial system. This is especially important to enable the financial system to meet the new demands for financing associated with Malaysia's economic transformation programme both during and beyond the next decade, the changing demographics of our population, and the increasing integration of the Malaysian economy with the region and the world.

(Zawya / 02 July 2013)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com