The overall banking growth in Malaysia is expected to be driven by Islamic banks that are growing at a rapid phase in the last 10 years, according to S&P Global Ratings. The credit rating agency stated that Malaysia’s banking sector loan growth in 2021 was projected to be around six percent, a 3.4 percent increase from the year before. Meanwhile, Islamic banking could easily double the loan growth at 10 to 12 percent or higher.
Nancy Duan, South and Southeast Asia financial services ratings associate director, told in a seminar that the growth for Islamic banks was expected to be driven by household credit like mortgages and hire purchase credit. It is less likely from personal loans and credit cards in 2021 with higher credit risk settlement. Malaysian Islamic banks usually had a larger share of exposure to the household segment and micro, small and medium enterprises (MSMEs) than their controversial peers. The loan growth might still face uncertainties with three downside risks: Malaysia’s economic growth, asset quality, and liquidity position.
As Malaysia is currently facing a resurgence of the Covid-19 infections, a reassessment of its gross domestic product (GDP) might be required. It is said to be a downward trend on the GDP forecast of 2021 and also result in adjusting the banking sector growth. The pandemic has altered the mindset and forced local Islamic banks to look more keenly at digitising their offers and leveraging more on financial technology vendors. S&P Global stated that it is witnessing the Islamic banking sector expanding at five to 10 per cent, while the fund industry also seems to grow as investors chase after yields.