With over a decade of local experience each, brand recognition, successful retail models and good government relations, Malaysia's large Islamic banks such as Maybank (Kuala Lumpur: 1155) and AMMB Holdings (Kuala Lumpur: 1015) are the regional leaders. According to a recent survey by The Asian Banker, 17 Malaysian banks controlled 73% of the assets among the top 40 Asian Islamic banks.
The growth and sophistication of the Malaysian market has also made it the springboard for international players looking to enter Asia. Middle Eastern Islamic banks such as Al Rajhi Bank and Kuwait Finance House and Western banks such as HSBC and Citigroup have all established local Islamic banking groups.
While increased competition may crimp margins in the near term, Malaysian Islamic banks should trade at a premium because of their strategic value as a gateway to Asia. Malaysian practices will set regional norms, and the IFSB, based in Kuala Lumpur, will likely be a key institution in negotiating common standards between Middle Eastern and Asian banks.
Looking Ahead
Islamic banking's rise will change both Islamic and conventional banking.
To become a truly global system, Islamic banking will have to harmonize, innovate and integrate. Gulf and Asian Islamic banking norms must be harmonized to provide global Shariah-compliant liquidity and realize economies of scale. Much as innovative financial products such as swaps and CLOs have transformed conventional capital markets over the past 25 years, innovative Islamic banking products will also have to be developed to finance increasingly sophisticated transactions. Finally, Islamic banking must become better integrated with conventional banking and banking regulations.
However, the conventional banking system will also be forced to adapt. As the funds in Islamic banking grow, they will increasingly affect the stability of international capital flows as well as security interests in transnational law enforcement and counterterrorism. To remain effective, international banking institutions will have to accommodate Islamic banking practices. Likewise, conventional banks in the West risk losing existing Muslim customers and lucrative future opportunities in the Middle East and Asia if they do not change to meet their customers' Islamic banking needs.
In meeting both challenges, cultural understanding of the other will be a driver of competitive advantage, not simply a nicety of etiquette.
Keith Lieberthal
RSS
