Shariah Included in Indonesian Bank Rule

The country’s central bank will soon issue a regulation requiring Shariah banks to toughen down payments on housing and automotive loans, a deputy governor said on Sunday. 

The requirement will be similar to the implementation of the loan-to-value level applied to conventional lenders for housing and vehicle loans issued on March 15 and took effect on June 15. 

Under the new regulation, down payments of 25 percent for two-wheeled vehicles are required and 30 percent for four-wheeled vehicles. There were no rules before, but sellers often asked for about 15 percent. Loans typically account for 70 percent of car purchases in Indonesia. 

Shariah lenders were excluded from the regulation as in Islamic finance, lending does not require down payments. 

But Halim Alamsyah, a deputy governor at Bank Indonesia, said on Sunday that the first installment of Islamic loans for the automotive sector would be regulated. 

“We have decided that the first installment of Shariah credit for goods without down payments will be regulated,” he said. 

He did not specify the down payment size, despite saying the upcoming regulation was a precaution against a potential increase in non-performing loans amid the ongoing threat of global financial crisis. 

Bank Indonesia has sent signals to the market that it is cautious that credit expansion could grow too quickly in the future and may exceed local lenders’ financing capacity. 

The bank was worried of a bubble forming in the sector. Shariah banks comply with Islamic requirements, such as banning interest payments, providing no financing for alcohol and sharing profit and risks with customers. 

As Bank Indonesia did not include Shariah lenders in the down-payment regulation, many banks are bolstering their Shariah financing arms to avoid it as much as possible, exploiting a loophole in the rules. 

“The LTV and down-payment regulation [on Shariah lenders] needs to be made effective soon. More meetings, however, are still needed,” Halim said on Sunday. 

Automotive retailers have posted record car sales for July despite the introduction a month earlier of new rules requiring purchasers to make higher down payments, industry data show. 

Car sales in July hit 103,219 units, beating the previous monthly sales record of 101,743 units in June last year, data from the Association of Indonesian Automotive Manufacturers (Gaikindo) showed. 

The July figure was 16 percent higher than that for the same month in 2011 when 89,056 vehicles were sold. The latest figure brought total sales for this year to 638,264 units, up 26 percent from the same January-July period in 2011. 

Gaikindo chairman Sudirman Maman Rusdi said the increase in sales last month was due to customers anticipating Idul Fitri, which marks the end of the Muslim fasting month. 

Car sales in Indonesia are forecast to reach 875,000 units this year, similar to the figure last year but well below the original target of 1 million. 





http://www.thejakartaglobe.com/business/shariah-included-in-indonesian-bank-rule/537844

Islamic finance grows more than 40 per cent a year, Bank Indonesia seminar told

Indonesia’s Islamic banking sector has been growing 40.2 per cent annually over the last five years, outpacing growth in conventional of 16.7 per cent a year over the same period.

Deputy Governor of Bank Indonesia, the country's central bank, Halim Alamsyah, officially opened the second international seminar on Islamic finance, 7-8 May 2012, in Bandung. The seminar was themed ‘Can Islamic Finance Focus on Productive Economic Activities to Promote Growth & Financial Stability’. President of the Islamic Development Bank (IDB) Group, HE Dr Ahmed Mohammed Ali was the keynote speaker.

The Deputy Governor forecast that Shari’ah-compliant banking could account for 15-20 per cent of Indonesia’s banking industry within 10 years, from just over four per cent currently. “We are confident Syariah (Shari’ah) finance will stimulate economic growth to a higher level and enhance the stability of the financial system,” he said at the opening of the Seminar in Bandung.

Indonesia’s Islamic finance assets were worth IDR 214 trillion ($23.2 billion), of which around 69.5 per cent are  banking assets. Indonesia has 11 Shari’ah-compliant commercial banks, 24 Shari’ah bank business units and 155 Shari’ah-compliant rural banks (Bank Perkreditan Rakyat) with total assets of IDR 152.3 trillion (about US$16.5 billion).

Halim said Bank Indonesia is ‘very serious’ in its efforts to expand Islamic finance, especially banking, is confident that it could contribute greatly to economic growth, financial system stability and social well-being.

Issues discussed at the Seminar in Bandung included:

• enhancing the role of authorities in realizing the virtue of Islamic finance towards sustainable economic development;
• revisiting current banking businesses and designing an enhanced banking model with optimal support for the real sector;
• extending financial services to larger parts of society for more balanced and sustainable economic growth;
• improving business values through Islamic finance (the preferred values and opportunities);

and challenges and opportunities in developing Shari’ah-compliant products to promote productive economic activity.Speakers and participants came from more than 11 countries including Turkey, UAE, Saudi Arabia, Bangladesh, Hong Kong, Bahrain, Thailand, Japan, Iran, Brunei, Malaysia, Singapore and Indonesia. The attendees include Board Member of the Central Bank of Turkey, Dr Lokman Gunduz; Head of BIS Asia Pacific, Dr Eli Remolona; Head of OREI, Asian Development Bank, Prof Dr. Iwan Jaya Aziz; the Governor of West Java, Dr (HC) Ahmad Heryawan; the Director General of the Indonesian Debt Management Office, Mr Rahmat Waluyanto; CEO of the International Islamic Financial Market (IIFM), Mr Ijlal Alvi; Dr Milani Zivadjil from the International Monetary Fund; as well as Prof Dr Iraj Toutounchian from Iran, an expert on Islamic Economics and Finance.

http://www.cpifinancial.net

Bank Negara Indonesia to grow Shariah banking

Indonesia's fourth largest lender Bank Negara Indonesia (BNI) is actively searching for a partner to further tap growth opportunities in Shariah banking. 

Its CEO Gatot Suwondo said the bank is also looking to venture into micro-banking - an area that's new to BNI right now.

Bank Negara Indonesia is one of the familiar household names in Indonesia with over 1,500 branches.

And the lender is looking to grow its business further.

For 2011, BNI booked a net profit of about 5 trillion rupiah (US$550 million) - up by some 40 percent from the previous year.

In 2010, BNI injected around US$100 million in Shariah banking. Now it is evaluating potential business partners to spur growth in Shariah banking space.

Mr Gatot said: "We need a partner who has knowledge in Shariah and besides that, we have network in Shariah and of course, strong funds to grow our shariah banking.

"Some of our potential partners for Middle East are approaching us. Looking at partners, you can't do it in one night. You need to know first if their vision is in line or not."

BNI also has its eye on some potential acquisition targets to help the bank make inroads into the micro-finance market.

Micro-finance refers to the provision of banking services to poorer clients, who typically do not have access to many financial services.

Mr Gatot added: "We prefer maybe to acquiring bank to cater to market segment that we're not in a capacity to do, for example micro-banking.

"For micro-banking, we can't do it through our BNI because we're not designed for that market. So it's most likely we are going to focus on banks towards that segment. There are 125 banks in Indonesia. And 40 banks out of 125 are controlling the market so there are small banks that we can target." 

Mr Gatot said BNI would also focus on organic growth.

For 2012, he estimates that loans could grow by 15 to 18 percent, a touch lower than the previous year due to slower economic growth. 

BNI also intends to strengthen its headcount in Indonesia, partly to capture opportunities arising from higher foreign direct investments into the country.

Mr Gatot said: "If I could project the FDI to grow somewhere around 20 percent a year, it is good enough, 20-30% per year is good enough. 

He said this is on condition that they fix the regulations so as to attract more FDIs and secondly, to provide more incentives for foreign investments.

Indonesia's FDI hit a record US$20 billion in 2011, an 18 percent hike over 2010.

And it could rise further after rating agencies Moody's and Fitch recently upgraded Southeast Asia's largest economy to investment grade.

http://www.channelnewsasia.com/stories/corporatenews/view/1185565/1/.html

Sharia banks’ assets grow by nearly 45%

The total assets of sharia banks rose by nearly 45 percent during the first nine months of this year after several banks split their shariah banking divisions into separate banks.

Bank Indonesia (BI) director for sharia banking Mulya Siregar said Wednesday that up to September of this year, sharia banking assets reached Rp 85.9 trillion (US$9.6 billion), up 43 percent compared to that recorded in September of last year. 

The central bank forecasts sharia banking assets would grow to Rp 97 trillion at the end of 2010, or a 43 percent increase year-on-year.

Mulya said that Rp 65.3 trillion of the assets recorded as of Sept. 20, comes from sharia banks, with 

Rp 18.2 trillion and Rp 2.5 trillion from the sharia banking division of the existing banks and from rural sharia banks. “The current figure is in line with our moderate projection of 43 percent growth in sharia assets for the full year of 2010,” Mulya said. 

Maybank Syariah, which just began its operation on Oct. 11, joined BCA Syariah, Bank Victoria Syariah, BNI Syariah and Bank Jabar Banten Syariah on the list of sharia banking newcomers this year.

According to Mulya, Maybank Syariah added about Rp 1 trillion in to the overall sharia banking assets to about Rp 87 trillion so far this year.

“If foreigners said there would be an expansion in sharia banking in Indonesia, that’s true,” he added, citing more banks spinning off their sharia units and establishing a sharia subsidiary as indicators. 

At present, there are 11 sharia banks in Indonesia including the oldest, Bank Muamalat Syariah.

Mulya said from 2001 to 2008, sharia banking assets on average grew by Rp 161 billion monthly. Meanwhile, since the government announced a set of sharia banking regulations in 2008, the industry’s assets grew by Rp 1.5 trillion monthly. “In July and August of this year alone, the assets of sharia banks grew by Rp 3 trillion each month,” he added.

Mulya also attributed the existence of corporate and government Islamic bonds (sukuk) to the faster growth of sharia banking. “The availability of sukuk eases sharia banks’ assets and liability management, particularly to manage their liquidity,” explaining how the banking industry was attracted to penetrating the Islamic financial system.

However, although growing faster than commercial banks, sharia banking remains a small 3 percent fraction of overall banking assets in the world’s largest Muslim-populated country. Mulya cited insufficient human resources as the main factor hampering the sharia business from growing further to achieve more market share in the banking system. “The sharia business is growing faster than human resources,” he said. However, there has been widespread understanding that sharia banking expansion was hampered by clashing regulations.

On this, Mulya said that the central bank and the government were studying tax incentives for Islamic finance, which may be completed by the end of this year.

http://www.thejakartapost.com/news/2010/10/21/sharia-banks%E2%80%99-assets-grow-nearly-45.html

According to BI data, sharia financing reached Rp 61 trillion up to September of this year, and 1.8 percent of which, or Rp 1.1 trillion, went to the property sector. Islamic financing in sharia banks mostly went to the trade sector, or 60 percent of the total financing, Mulya said. (est)

Sharia bank industry to continue accelerating

The central bank is optimistic that Islamic banking in the country will continue to accelerate in 2010 as the economy gears toward recovery and new policies support the industry.

"The growth of Islamic banking in 2010 is expected to increase further ," Bank Indonesia (BI) acting governor Darmin Nasution said, delivered by BI deputy governor Budi Mulya, in a seminar on the prospect of Indonesia's Islamic banking Monday.

Darmin said the industry would develop because of an organic growth from the existing players, and also the increased number of new banks.

As of September the total assets of Islamic banks grew by 26.6 percent from a year earlier. It grew by 17.1 percent in the first nine months this year.

"I believe, after considering the future economic development, nationally as well as internationally, that Indonesian Islamic banking can maintain its growth," he said.

BI estimated the economy to expand between 5 percent and 5.5 percent in 2010, up from about 4.3 percent this year, due to higher growth of private consumption and exports.

Link: http://www.thejakartapost.com/news/2009/12/07/sharia-bank-industry-continue-accelerating.html

Five Indonesian Banks To Set Up Islamic Units

Removal of double taxation is expected to encourage more banks to enter into Islamic banking in the nation

In order to give an impetus to the Indonesian sharia market, five banks including Bank Central Asia (BCA) are expected to launch standalone sharia units next year – reported Reuters. Industry officials are of the opinion that the removal of double taxation, which made transactions expensive, would encourage more banks to enter into Islamic banking susidiaries.

Adiwarman Karim, chief of Karim Business Consulting, said: "I expect to see more banks spinning off their sharia units as the new VAT law which scraps double taxation from sharia transactions will take effect next year."

Other banks planning to set up sharia banking units in Indonesia include Bank Panin, Bank Victoria, Bank Negara Indonesia and unlisted Bank Jabar Banten.

Reportedly, conventional banks usually establish Islamic subsidiaries by first setting up Islamic banking departments and then converting them into separate Islamic banks. BCA may buy small conventional banks and convert them into Islamic subsidiaries.

Barno Sudarwanto, head of planning and development at the sharia unit of Bank Negara Indonesia, said: "We hope that it would be easier for us to expand business and seek strategic partners. We also hope to grow faster and attract investors from Middle East," reported the news agency.

Link: http://retailbanking.banking-business-review.com/news/five_indonesian_banks_to_set_up_islamic_units_091023/

Indonesian gov't urged to seriously develop Islamic banking

Indonesian Islamic banking required real steps of the government to make it par with those in other countries, head of the Islamic banking association Riawan Amin said on Aug 13th, 2009

Indonesian Islamic banking required real steps of the government to make it par with those in other countries, head of the Islamic banking association Riawan Amin said on Aug 13th, 2009. Riawan said that Indonesian Islamic banking needs a quick real supports from the government through its policies in settling various problems that linger the banking system in developing itself. Comparing with what have already been applied by the government in the neighboring country Malaysia, Riawan said that as of now, the Indonesian government is yet to make actual moves to settle the problems. "The Malaysian government has provided tax incentives, but our government is yet to take any policy on the double tax issue that persists in national Islamic banking system," he said. According to the director of the largest Islamic bank in the country, the double tax has been the most problem complained by Islamic bank customers and investors who want to put their investments in Indonesian Islamic bank's portfolios. Due to the minimum assistance from the government, the Islamic banks in Indonesia failed to comply with the target that their assets accounted for 5 percent from total asset of banks operating in the country by 2008. According to the data issued by the Indonesian central bank, the asset of national Islamic banks stood at 47.18 trillion rupiah(about 47 billion U.S. dollars) by the end of 2008, or lower than the asset of conventional banks that reached 1,632,587 trillion rupiah (some 164.2 billion dollars) in the same period. Link: http://www.cibafi.org/NewsCenter/English/Details.aspx?Id=4594&Cat=0

Islamic economic system could tackle global crisis: Indonesian VP

JAKARTA, July 27 (Xinhua) -- Indonesia's Vice President Jusuf Kalla said that Islamic economic system could tackle the global economy crisis because it was based on real transaction and could create prosperity and economic justice, the private news portal Bisnis.com reported on Monday.

"Islamic world should adopt its own economic system to reduce economic gap amidst 'non-real transactions' in the global trade," he said in the opening speech at a seminar titled "the Islamic World and the Future of World Civilizations", here.

According to Kalla, Islam population, accounting for 25 percent of total world's population, will not suffer if Islamic values in its economic system was implemented properly.

Kalla urged all Muslim countries to adopt Islamic economic system to change the non-real economic paradigm.

"This is our chance to change the world because this (Islamic economy) is from Allah. We could make the world better," he said.

Kalla also urged the Islam world to be united to tackle social problem like poverty. He said that currently, 70 percent of Islam people in developing countries live close to poverty whereas others were very rich thanks to skyrocketing oil price.

In the last few months, oil price has been steadily above 50 U.S. dollars per barrel, making the oil-producing countries, especially Muslim-dominated countries in the Persian Gulf, richer.

Link: http://news.xinhuanet.com/english/2009-07/27/content_11781134.htm

Indonesian Islamic bonds oversubscribed

JAKARTA, Apr 17, 2009 (AFP) - Indonesia has sold 650 million dollars of its first dollar-denominated sukuk, or Islamic bonds, on the international market to help cover a widening budget deficit, a senior official said Friday.

"The issuance was performed to meet our funding target for the 2009 budget, to diversify our funding instruments and widen the investor base for sukuk on the international market," finance ministry official Rahmat Waluyanto said.

Waluyanto said the five-year Islamic bond, which matures April 23, 2014 and pays a fixed 8.8 percent rate of return, was about seven times oversubscribed when it went on the market Thursday.

Middle Eastern and Islamic investors snapped up 30 percent of the issuance while buyers from Asia, including Indonesia, accounted for 40 percent.

US investors bought 19 percent and European investors 11 percent.

Funds were the largest investor class, accounting for 45 percent of demand, while banks bought 37 percent. Retail investors bought 14 percent and insurance and pension funds four percent.

Although Muslims form the majority in the country of 234 million people, shariah finance comprises only one to two percent of all finance.

Sukuk conform to Islamic Shariah law in which charging interest is forbidden. They create returns through profit-sharing agreements or from the lease of securitized assets owned by the seller.

Indonesia's sukuk use the assets model, known as ijarah, and are backed by government land and buildings.

Indonesia's shariah financing market still lags far behind nations like Malaysia in magnitude.

-- Dow Jones Newswires contributed to this story --

Link:

http://www.zawya.com/Story.cfm/sidANA20090417T055045ZALB82/Indonesian%20Islamic%20bonds%20oversubscribed