Shariah Banks Doing Booming Business

Jakarta Globe

The rapid expansion of Shariah banks in Indonesia paved the way for Shariah loans to increase by almost half in the first six months of the year, Investor Daily reported on Saturday, quoting a central bank director.

Mulya Siregar, director of Shariah banking at Bank Indonesia, said on Friday that Shariah loans rose 49 percent to Rp 83 trillion ($9.8 billion) through June, from the same period last year. He also said the Shariah financing-to-deposit ratio was at 95 percent.

Investor Daily is a sister publication of the Jakarta Globe.

“The growth is supported by the new Shariah banks that were spun off from their parent companies last year. These units have started to contribute significantly to Shariah growth,” the paper quoted Mulya as saying.

These five new Shariah banks are Bank BNI Syariah, Bank BCA Syariah, Bank Victoria Syariah, Bank Jabar Banten Syariah and Bank Panin Syariah.

Mulya said the Shariah units of big banks such as Bank Tabungan Negara, Bank Permata and Bank CIMB Niaga were also continuing to contribute significantly to growth.

He said that office channeling — a practice in which units use the parent company’s bank branches as representative offices to boost loans — had benefited Shariah units. For example, if Bank Negara Indonesia were to add more branches, then its Shariah subsidiary, Bank BNI Syariah, could offer its services to customers of those branches.

“However, we don’t know how big the impact is of this office channeling. But in terms of efficiency, these Shariah units surely have benefited because they don’t have to invest in new branches,” Mulya told Investor Daily.

Despite Shariah banking having seen significant growth in the country, it remains a tiny portion of the national banking sector.

According to data from the central bank, Shariah banks’ assets have increased by 38 percent in the past five years.

Last year, their assets increased by 48 percent, easily outpacing the 10 percent to 20 percent annual growth for Shariah banks globally.

As of June, the total assets of Indonesia’s Shariah banks reached Rp 109.75 trillion, accounting for 3.3 percent of total assets of the banking sector.

Shariah banks’ profits rose 22 percent to Rp 400 billion in the first quarter from a year before.

There are currently more than 2,900 Shariah bank offices in Indonesia, which serve approximately eight million customers.

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