Islamic banking poised to expand across South and Southeast Asia post-pandemic: Moody’s Research
Singapore, February 25, 2021:
Strong capitalization and liquidity will help Islamic banks meet increased demand for financing as
economies recover from the pandemic.
Rising demand means growth of Islamic financing will outstrip that of conventional loans in these
countries. Islamic banks in South and Southeast Asia have sufficient capital and liquidity to meet increased
demand for financing as economies recover from the pandemic, while young, growing populations
and government efforts to develop the sector will support long-term growth, according to a new
report by Moody’s Investors Service.
“Although Islamic banks’ profitability in these regions weakened in 2020, their capital buffers remain
mostly robust, supported by government measures to soften the impact of the coronavirus outbreak.
Strong capitalization will in turn enable Islamic banks to meet increased demand for financing as
economies recover,” said Tengfu Li, a Moody’s Analyst.
Liquidity has also eased or remained stable because of strong growth in low-cost deposits as
consumers and businesses cut spending, and as central banks relaxed reserve requirements and
carried out open market operations.
Moody’s expects Islamic financing will continue to expand faster than conventional loans across
South and Southeast Asia, increasing the share of Islamic financing in total financing. Prime-age
populations, or people aged 25-54 years, will boost the long-term expansion of Islamic banking,
especially given these countries’ large untapped market.
Key to the growth of Islamic banking are efforts by governments of major Islamic banking markets
in South and Southeast Asia to develop the sector, given its role in increasing financial inclusion
and inherent alignment with environmental, social and governance (ESG) principles, which are
growing in relevance amid the pandemic. Additionally, Islamic banking is part of a halal ecosystem
governments want to create to spur economic development.