BNM issues Annual Report & Financial Stability Report

The Bank Negara Malaysia, the Malaysian central bank today issued the Annual Report and the Financial Stability and Payment Systems Report for 2006.

The Annual Report describes the significant development in the Islamic Interbank Money Market program:

"A major development in Islamic money market operations during the year was the inaugural issuance of the Bank Negara Malaysia Sukuk Ijarah on 16 February 2006, with an issue size of RM400 million."

The ijara sukuk is based on the transfer of Bank Negara Malaysia (BNM) assets (buildings and land) to a Special Purpose Vehicle (SPV) which purchases the assets with cash from sukuk issue and then leases the assets back to BNM and distributes the leasing income to the sukuk holders. At the maturity date of the sukuk, BNM repurchases the assets at a prespecified price. The sukuk will be used as part of the BNM liquidity management purposes in the Islamic Interbank Money Market.

The Financial Stability report describes the Islamic banking sector as well capitalized, in part because of higher pre-tax profits, and presents a pre-tax preliminary (unaudited) profit growth rate for the Islamic banking system of 9.6% over 2005. Takaful operaters also saw contributions and assets rise. Malaysia saw the growth of new Islamic banks, the conversion of some Islamic windows into Islamic banking subsidiaries and the licensing of two retakaful (Islamic reinsurance) firms. The Islamic financial industry saw increasing adoption of the Capital Adequacy Standards from the Islamic Financial Services Board (IFSB) and the launch of the Malaysian International Islamic Finance Center (MIFC).