INDONESIA’S Islamic banks say new rules acknowledging the lower risk of profit-sharing loans will help revive industry growth from the slowest pace on record.
The Financial Services Authority (FSA) is introducing reserves ratios that will vary depending on banks’ risk profiles and setting more flexible guidelines for assessing the quality of syariah-compliant assets, it said in a November 19 statement.
While the rules will mean higher ratios for some lenders, the overall impact is positive as loans that use profit-sharing structures will be deemed less risky, said Hendiarto Yogiono, finance director at PT Bank Muamalat Indonesia.
“The rules are more specifically tailored for Islamic banks, taking into account the different structures we use,” he said in a phone interview recently.
“They will restore confidence in syariah banks in the minds of our stakeholders and customers, which will have a multiplier effect in the longer term.”
Growth in Indonesian Islamic financial assets cooled to 11 per cent in the year through September, from as high as 49 per cent in 2011, as syariah lenders struggled to compete with their non-Islamic counterparts in a slowing economy. That’s threatening the government’s goal of boosting market share from 4.7 per cent to enable Indonesia to challenge Malaysia, where the proportion is 25 per cent, as an Islamic finance centre.
Indonesia’s second-biggest Islamic lender, Bank Muamalat, sees industry growth accelerating next year, said Hendiarto.
PT BNI Syariah, a unit of the nation’s fourth-largest bank, forecasts expansion of 15 per cent next year, said its director Imam Teguh Saptono on Tuesday.
Lenders have until 2016 to comply with the new capital-adequacy ratios that will range from eight to 14 per cent, depending on risk profiles. Both Islamic and conventional banks have to hold primary reserves of eight per cent of deposits and secondary reserves of four per cent, with no consideration given to whether the banks’ liabilities are syariah-compliant or not.
The revised regulations are less stringent in judging the quality of outstanding Islamic loans, especially those based on profit-sharing structures, said Nelson Tampubolon, FSA executive director for banking supervision. “We’ve assessed the banks and found them ready to abide by the new requirements.”
Instead of charging interest, syariah-compliant banks acquire a stake in the companies or ventures they lend to, or agree to receive a proportion of earnings from the borrower. Bloomberg