Saturday, January 07, 2012

Islamic banking growth in Indonesia

One of the regions I see continued growth for Islamic finance in 2012 is Indonesia, which is geographically close to Malaysia where Islamic finance is as developed as anywhere in the world.  There are also links between the two countries banking systems, with several Malaysian banks with Islamic windows (e.g. CIMB). 

The central bank, Bank Indonesia, reported that (ht IF Indonesia for translating the article) in November 2011, Islamic bank financing had risen 45% over the same period in 2010 to Rp. 31.9 trillion ($3.5 billion).  For the fourth quarter Islamic bank financing was Rp. 102 trillion ($11.2 billion), 45%.  At the same time, non-performing loans fell from 3.12% to 2.85%, indicating that the increase in quantity has so far not come at the expense of quality. 

However, the Islamic banking industry in Indonesia is tiny compared to the overall banking system, representing between 3.8% and 3.9% of the total banking system.  This small size and rapid growth, represents an opportunity to expand, which I think it will in the next year. 

There are also developments in how the central bank interacts with Islamic banks, with the launch of repo transactions on Islamic Treasury Bills, which I discussed in an earlier post.

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