Bursa Malaysia encourages financial institutions to begin exploring possibilities of listing their Islamic banking subsidiaries, as there’s inadequate syariah-compliant equity instruments in the financial services sector.
Bursa Malaysia chairman Tan Sri Abdul Wahid Omar said a majority of financial institutions, such as major local banks, were still categorised as conventional, despite a big portion of their businesses being syariah-compliant now.
“More than 60% of Malayan Banking Bhd’s total financing is already syariah-compliant. In a typical approach, we would like to encourage these banks to list their Islamic banking subsidiaries,” he said at the Invest Shariah Conference 2023, organised by CGS-CIMB Securities Sdn Bhd.
Abdul Wahid said there will be some challenges, as most banks operate on a leverage model, which means that their Islamic banking business leverages on their current branch network, management team and other aspects.
He said if financial institutions were to list their Islamic banking subsidiaries separately, there will be a presence of minority shareholders and third-party transactions, which will become an issue.
“I think that is why we have to start thinking about other instruments, which will enable a portion of equities to be traded on the syariah-compliant market,” he told the media at the event.
“In the past, I had mentioned the need to designate some of the shares as syariah-compliant shares. What you do is earmark and ring-fence income from the Islamic banking operations as a source of payments for dividends and so on,” Abdul Wahid added.
He added Bursa Malaysia expects a positive outlook for the Islamic equities market for the second half of 2023.
“Given global interest rates have appeared to have reached the peak level in the second half, we will see a reversal of investment flow away from developed markets into emerging markets. This is not just into Malaysia, but also into other Asean markets,” he added.
Abdul Wahid said once investors entered the market, it will bolster not only the syariah-compliant equities, but the broader market as well.
He then shared that the exchange was still developing a system for its new offering, Bursa Gold Dinar (BGD), which provides a platform for investors to invest in gold at a significantly lower spread.—The Star