There’s growing belief in Southeast Asia’s US$290 billion Islamic banking market. Over the next three years, the market is poised to grow at a compound annual growth rate of about 8%, primarily led by Malaysia and Indonesia.
That’s according to a report published by S&P Global Ratings today titled, “Growing Belief In Southeast Asia’s US$290 Billion Islamic Banking Market.” (attached)
Southeast Asia is the world’s third largest Islamic banking market, forming 17% of the US$1.7 trillion in global Islamic banking assets.
“In the major markets of Malaysia and Indonesia, we believe Islamic banks will grow faster than conventional banks, riding on the robust demand,” said S&P Global Ratings credit analyst Nikita Anand.
In Malaysia, local Islamic banks could account for about 45% of the overall commercial banking loan book by the end of 2026, the report finds.
In Indonesia, the sector’s market share could improve to about 10% by the end of 2026.
In Brunei, Islamic financial institutions constitute about half of the total financial system assets and growth should mirror that of the broader banking system. In the Philippines, the sector is small but there is an untapped market and regulators are striving to increase transparency in a bid to encourage local and foreign investment.
This trajectory will face inevitable hurdles. The region’s recovery from COVID-19 has been uneven. Pandemic-related loan relief has distorted the true health of asset quality. Meanwhile, geopolitical shockwaves have pushed up energy and commodity prices, which could affect domestic demand.—Zawya News
