RAM Reaffirms Stable Outlook For Malaysian Islamic Banking Sector In 2016

KUALA LUMPUR, March 22 (Bernama) -- RAM Ratings has reaffirmed its stable outlook for the Malaysian Islamic banking sector this year, despite the more challenging economic environment having weakened asset quality and funding parameters. In a statement, the credit rating agency said in line with its view on the overall domestic banking system, it has maintained the stable outlook on the 10 Islamic banks in its rating portfolio out of 16 in the system, which accounts for close to 90 per cent of this segment’s assets. "The majority of the RAM-rated Islamic banks in Malaysia fall within the AAA to AA rating spectrum, mainly underpinned by support from their parent universal banking groups or shareholders," it added. "This year, we expect the Islamic banking sector’s asset quality to face a more trying landscape than the broader banking sector," said CoHead of Financial Institution Ratings, Sophia Lee. She also said typically, Islamic banks in Malaysia have more concentrated financing portfolios compared to their conventional peers. "The tighter funding conditions have intensified competition among Islamic banks for deposits," she added. Meanwhile, RAM Ratings said capitalisation metrics remained sound for the Islamic banking sector last year. The respective common-equity tier-1 and total capital ratios edged up to 12.2 per cent and 15.9 per cent as at end-January 2016, increasing from 12 per cent and 15.5 per cent respectively in 2014. "The challenges posed by strained asset quality and tighter funding may impinge upon Islamic banks’ profitability this year. "However, their credit profiles can still be shored up by their comfortable capitalisation levels," said Lee. --BERNAMA