Business financing set to pick up, says BIMB

Business financing is expected to pick up, helped by key industries such as oil and gas, construction and manufacturing, despite the challenging landscape in Islamic banking this year.

Bank Islam Malaysia Bhd (BIMB) Managing Director, Datuk Seri Zukri Samat, said the catalysts would be the higher capital expenditure by Petroliam Nasional Bhd and the implementation of the infrastructure project like the mass rapid transit.

The increasing demand from export-oriented manufacturers, especially the electrical and electronics sector due to the improving external factors would also contribute to the growth in business financing, he said.

"Business financing via corporate and commercial sectors are expected to fill the gap in financing demand caused by over-leveraged households," he told Bernama in an interview.

He said while business financing has gained traction, consumer financing remained challenging as demand was expected to moderate due to the government's austerity policy and tighter margin caused by fierce competition.

Zukri said as the government was anticipated to continue its austerity policy to reduce subsidies and rein in budget deficit, tighter credit policy by Bank Negara Malaysia through macro-prudential measures to address household debts would have an impact on retail financing growth.

"As a result, consumers will adopt a more cautious stance in their spending," he said.

He said the situation was made worse as fierce competition caused further erosion to the margins as banks competed for both financing and funding.

"For Islamic banking and the banking sector in general, the competitive environment has made it even more imperative to drive consumer-centricity and innovation, especially now when consumers are more sophisticated," he said.

Zukri said with overcrowded market players currently forcing many Islamic banks to compete head-on against their conventional peers, further consolidation through mergers and acquisitions could offer economies of scale that smaller players lacked.

Islamic banking growth in Malaysia has been consistent for the past decade, averaging about 20 per cent annually since 2000 with Shariah-compliant assets currently representing over 22 per cent of the country's total banking assets as at September last year.

Zukri said the current global and domestic economic conditions, however, would continue to set the tone for the Islamic banking landscape this year and thereafter.

He said while uncertainties surrounding the global economies were seen to be gradually improving, recovery was still best described as nascent.

"The banking industry undoubtedly will be affected by these factors. In addition, there are industry-specific challenges such as competition, international regulatory reforms and introduction of macro-prudential measures," he added.

Zukri said with household debt reaching 86 per cent of gross domestic product in 2013, macro-prudential measures, such as requirements on responsible financing were introduced which included shortening of tenures for certain types of financing and tighter credit approval policy.

"As it is now, most banks are already feeling the pinch. The slowdown in loans growth in 2013 is a testament of the impact and this trend is expected to flow through this year," he said.

Zukri said for Islamic banking, another factor which has to be considered was the strict adherence to Shariah principles.

He said strict adherence to Shariah principles was key to retain confidence of customers who were banking on convictions and eventually would ensure that the objective of globally-accepted products and services was attained.

Zukri said the implementation of the Investment Account framework under Islamic Financial Services Act 2013 was a good case which required Islamic banks to differentiate between deposits and investment accounts based on the risk taken and return expected by the customers.

He said the intention was for customers to make informed decisions, promoting transparency via periodic disclosure of investment performance.

At the same time, he said, the industry would continue its effort in perfecting and enhancing other product offerings in line with the Shariah standards.

However, he said, the public's awareness and perception of Islamic finance had to be equally pursued.

"The lack of rigour in ensuring the understanding of the Islamic finance concepts may be an impediment to growth in the long run," he said.

He added that education of Islamic finance was therefore vital to sustain the growth of Islamic banking.