Malaysia’s Islamic Banking sector continues to expand

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Singapore

Malaysia’s Islamic banking sector continued to expand amid economic challenges from the coronavirus pandemic, says Fitch Ratings.

The share of Islamic financing in the banking system reached 37% by end-2020 (end-2019: 35%), with Islamic financing contributing nearly all of the banking sector’s growth in 2020, driven by household financing and banks that promoted Islamic products as part of the “Islamic First” strategy.

In 2021, Fitch expects the Islamic banking sector’s credit profile to remain stable with adequate loss-absorption buffers, despite near-term pressure on asset quality and profitability.

We expect credit impairments to accelerate and credit provisions to remain high, following a moratorium and other loan repayment relief provided to vulnerable borrowers, which have masked banks’ underlying asset quality from 2020. —Agencies