Islamic banking in Indonesia is expected to surge by 81% in 2010 due to the organic growth from existing players and entry of new players.
According to the predictions of the central bank, assets of Islamic banking could expand by 81% in 2010, reported
The Jakarta Post. The Islamic banking industry had mobilized total assets worth Rp 61.4 Trillion (US$ 6.54 Billion) as of November.
Bank Indonesia projected that total assets could touch Rp 68 Trillion by end-2009, up 37% from 2008.
On the back of organic growth posted by the current industry players and surging number of new players, Islamic banking sector is expected to see even higher growth in future. Presently, five standalone Islamic banks operate in Indonesia; however, five others are likely to surface in 2010.
While the recovery in global economy will assist the overall financial sector, Islamic banks will be benefited by the removal of double taxation on the collateral in financial transactions based on sharia. The recently passed legislation on value-added tax, which comes in effect from April 2010, regulates the double taxation removal.
However, according to the industry experts, to attain optimum growth of 81% in assets, Islamic banks need to make use of all the favorable regulations. If not, the expected growth may just go up to a moderate level of 43% on account of the entry of some fresh players into the banking industry, or even pessimistic 26% growth may be backed by organic growth coming from the current players alone.
Regardless of the marked growth in the past five years, Islamic banking assets still represent just a small fraction of the total banking assets. In fact, penetration of Islamic banking is very low in Indonesia, although the country has the largest Muslim population in the region. Here lies one of the edges Indonesia possesses to become an attractive Islamic banking market, says “
Indonesian Islamic Banking Outlook to 2013”, a market research report by
RNCOS.
According to a Research Analyst at
RNCOS, “Islamic financial sector has immense potential in Indonesia – be it in the form of Islamic asset management, Islamic banking or Islamic capital markets. No doubt, a lot needs to be done to boost the growth. Islamic banking in the country, in particular, is in need of a large pool of talented professionals to ensure smooth working and capture higher share in the market. It should also take help of advertising agencies to promote its products and penetrate deeper into the minds of people.”
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