MOODY'S IDENTIFIES STRATEGIES THAT BOOST ISLAMIC BANK RATINGS

KUALA LUMPUR, May 11 (Bernama) -- Moody's Investors Service has identified
various characteristics found in strategies adopted by Islamic banks which will
enhance their long-term ratings.

In a report authored by its vice president/senior analyst, Christine Kuo,
Moody's said they included strategies that improved franchise value, risk
positioning and financial fundamentals

Kuo's report said most Islamic banks' strategies tried to achieve asset
growth.

"While this is important, appropriate systems and infrastructure to address
risk issues need to be in place to support sustainable growth; therefore, risk
management should be implemented first followed by growth.

"When it comes to global comparisons, it is more important for Islamic banks
to build strong franchises in selective markets and businesses, and to maintain
sound financial profiles as opposed to big balance sheets," she said.

The report assessed strategies adopted not just by Islamic financial
institutions, whose scope of business must comply with syariah law, but also
conventional banks which operate syariah-compliant departments.

It said that while size was important because diversification was harder
when an institution was small, those banks which enjoyed dominant positions in
smaller but more favourable markets may have a higher franchise value (which
could translate into greater earnings stability) than a bigger bank with a
highly price-sensitive customer base operating in a competitive market.

Kuo said it followed that it was better for Islamic banks to have a strategy
that helped achieve a stronger position in a few selective markets than one
which resulted in marginal positions in many competitive markets.

The report noted that Islamic banks tended to have greater concentration in
assets and liabilities compared with conventional banks, and faced challenges in
managing liquidity and risk due to the limited range of instruments available.

She said Islamic products were less commoditised and required more tailoring
and oversight leading to substantial overheads and operation risk.

"Additionally, for Islamic banks with significant exposures to equities and
properties, conservative financial leverage is particularly important in view of
the volatility in the values of these investments," she said.

-- BERNAMA