Indonesia sees slower Islamic banking growth in 2014

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Indonesia Islamic bankingIndonesia’s central bank said that the growth of Islamic banking assets will slow in 2014 due to rising pressure from trade deficits and a depreciation in the rupiah, Reuters cited from a bank report released on December 18.

Financial authorities in Southeast Asia’s largest economy now plan to introduce an array of policies to develop the sector, ranging from regulating foreign exchange markets, introducing Islamic repurchase agreements as well as education and promotion initiatives. The central bank estimates industry assets will grow between 19 per cent and 29 per cent in 2014, slower than a forecast of 31.8 per cent in 2013 and nearly half from 2012 growth of 34.1 per cent.

Indonesia has the world’s biggest Muslim population but its Islamic finance market still lags behind neighbour Malaysia: Indonesian Islamic lenders held 4.8 per cent of total banking assets compared with more than 20 per cent for their Malaysian counterparts.

There were 11 Islamic banks in Indonesia with combined assets of $18.96 billion as of October 2013, compared with 120 conventional lenders with assets of $390 billion, central bank data showed.

The central bank said a tighter policy in finance-to-deposit ratio, similar to the loan-to-deposit (LDR) ratio used for conventional banks, and developing a Sharia-compliant lender of last resort (LOLR) would be needed to support the stability of the financial system.

Developing an “Islamic lender of last resort” would help Islamic banks during financial distress, while introducing an Islamic repurchase agreement would give lenders another tool to manage their short-term liquidity needs, a longstanding challenge for the sector.

Indonesia posted a modest trade surplus of $50 million in October, as a slow recovery in commodity prices eroded revenues amid a sharp fall in the rupiah. The rupiah is Asia’s worst performing currency and has fallen more than 20 per cent so far this year.

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Reading Time: 1 minute

Indonesia’s central bank said that the growth of Islamic banking assets will slow in 2014 due to rising pressure from trade deficits and a depreciation in the rupiah, Reuters cited from a bank report released on December 18.

Reading Time: 1 minute

Indonesia Islamic bankingIndonesia’s central bank said that the growth of Islamic banking assets will slow in 2014 due to rising pressure from trade deficits and a depreciation in the rupiah, Reuters cited from a bank report released on December 18.

Financial authorities in Southeast Asia’s largest economy now plan to introduce an array of policies to develop the sector, ranging from regulating foreign exchange markets, introducing Islamic repurchase agreements as well as education and promotion initiatives. The central bank estimates industry assets will grow between 19 per cent and 29 per cent in 2014, slower than a forecast of 31.8 per cent in 2013 and nearly half from 2012 growth of 34.1 per cent.

Indonesia has the world’s biggest Muslim population but its Islamic finance market still lags behind neighbour Malaysia: Indonesian Islamic lenders held 4.8 per cent of total banking assets compared with more than 20 per cent for their Malaysian counterparts.

There were 11 Islamic banks in Indonesia with combined assets of $18.96 billion as of October 2013, compared with 120 conventional lenders with assets of $390 billion, central bank data showed.

The central bank said a tighter policy in finance-to-deposit ratio, similar to the loan-to-deposit (LDR) ratio used for conventional banks, and developing a Sharia-compliant lender of last resort (LOLR) would be needed to support the stability of the financial system.

Developing an “Islamic lender of last resort” would help Islamic banks during financial distress, while introducing an Islamic repurchase agreement would give lenders another tool to manage their short-term liquidity needs, a longstanding challenge for the sector.

Indonesia posted a modest trade surplus of $50 million in October, as a slow recovery in commodity prices eroded revenues amid a sharp fall in the rupiah. The rupiah is Asia’s worst performing currency and has fallen more than 20 per cent so far this year.

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