OCBC expanding in Islamic financing

Reuters : OCBC Bank (M) Bhd’s Islamic banking business will expand financing by around 20% a year as it launches new syariah-compliant products and as more Malaysians make the switch from conventional banking, its chief executive said.

The growth in lslamic financing would “definitely be in the high teens or in the 20% level,” Jeffrey Chew said in an interview yesterday. He said about 60% to 70% of OCBC Malaysia’s Islamic banking customers were non-Muslims.

Chew also said the Malaysian unit of Singapore’s Oversea-Chinese Banking Corp. (OCBC) that got an Islamic banking licence in November last year, would open its first Islamic banking branch before year-end.

OCBC and rivals like HSBC and Citigroup have been building up their Islamic banking business in Malaysia in a bid to grab a slice of a market segment that is growing about five times faster than conventional banking.

Malaysia has a market share of about 4% of conventional loans, making it the second-largest foreign bank in Malaysia. It sells Islamic banking products via separate counters at its branches.

OCBC Malaysia’s Islamic bank last year saw outstanding financing the equivalent of loans in conventional banking grow 12% to RM1.9bil. Customer deposits rose 7% to RM2.8bil while assets increased 16% to RM3.7bil.

OCBC Malaysia said its share of Islamic financing in Malaysia was around 2%, making it the number two foreign player after HSBC.

Chew said OCBC hoped to grow the business in Singapore and planned to tap firms in the city-state to issue Singapore dollar-denominated sukuks, or Islamic debt.

“In Singapore, what we see developing is more on the wholesale banking,” he said. “The retail side will be much harder to develop even if the government uses incentives to promote it.”

That’s because Singapore lacks a critical mass of people, with Muslims constituting only about a fifth of the 4.5 million population compared with nearly two-thirds in Malaysia.