ISLAMIC FINANCE SHOWING EVOLUTION AND STRONG GROWTH

PETALING JAYA (Malaysia), Nov 25 (Bernama) -- Islamic finance has continued to demonstrate its evolution and strong growth during the challenging international financial environment, Bank Negara Malaysia governor Dr Zeti Akhtar Aziz said Tuesday.

"Islamic finance has now become a new vehicle contributing to increasing
the financial linkages not only within Asia but also with the rest of the world,
thereby facilitating cross-border allocation of capital globally," said the
Malaysian central bank governor.

"Indeed, a number of international financial centres have recognised
Islamic finance as an integral part of their financial system in order to
complete the suite of financial products and services being offered, and
therefore are actively developing this segment," she said at the launch of HSBC
Amanah Malaysia Bhd, the first Islamic Bank within the HSBC group.

According to Zeti, the Islamic finance industry has not only continued to
grow but it has also been able to present a higher level of dynamism.

The key indicators of the Islamic banking sector continued to record a
progressive pace of development whereby the Islamic banking assets have expanded
by 23 percent to RM234.9 billion (RM67 billion) compared with a year ago, she
said.

The Islamic banking industry now accounted for 16.7 percent of total assets
in the industry, she added.

Similar trends could be observed in the growth of deposits that have
reached RM180.4 billion (US$51 billiobn), up by 27.7 percent from a year ago,
while total financing increased by 24.5 percent to RM143.4 billion (US$41
billion), Zeti said.

"This growth has also accompanied by an increase in the number of
full-fledged Islamic banking branches," she said.

From January to September this year, 93 new branches were opened, thereby
enhancing the outreach of Islamic financial products and services.

Another area that has seen significant growth is the sukuk or Islamic bond
market, Zeti said.

The Malaysian sukuk market has expanded significantly with an average
annual growth rate of 22 percent since 2001, she said.

"Despite the current market conditions that have affected the volume of new
bond and sukuk issuance, the Islamic capital market has continued to structure
innovative Islamic financial instruments," Zeti said.

By the first half of 2008, the composition of the more innovative sukuk
musharakah had increased to 84 percent as compared to 58 percent of the total
sukuk issuance in 2007, she said.

Touching on the potential role of foreign Islamic banking subsidiaries,
Zeti said the policy for establishment of the subsidiaries was also part of the
initiative to enhance the outreach of Islamic finance and to strengthen
international linkages.

"It reflects part of the further liberalisation of the Islamic financial
services industry in Malaysia," she said.

Zeti said the foreign subsidiaries have the potential to promote
innovative product development and enhanced international integration of the
Islamic financial system.

"By leveraging on the global networks available, the foreign subsidiaries
are well positioned to engage in innovative product development in a more
cost-effective manner," she said.

The foreign subsidiaries also have an important role in enhancing the
international linkages of the Islamic finance industry regionally and
internationally, Zeti said.

"Reinforced by a well-developed legal, regulatory and Syariah framework and
with three decades of experience, our Islamic financial system offers a unique
platform as a meeting place between those that require funds and those with
surplus funds," she said.
-- BERNAMA