By Massita Ahmad
SINGAPORE, July 1 (Bernama) -- Digitisation, along with continued government commitment to develop Islamic banking, will support the growth of the sector in both Malaysia and Indonesia, according to Moody's Investors Service.
"Backed by strong profitability, Islamic banks in both Malaysia and Indonesia are stepping up their investments in digitisation, which should help the industry expand at lower costs," said Moody's vice president and senior analyst Simon Chen, in a statement here.
Digitisation generally helps banks reduce operating expenses by enabling them to streamline and automate internal processes and lowering costs to acquire and serve customers, according to the rating agency.
Another benefit of digitisation, for Islamic banks, in particular, is that it helps them overcome their small physical presence in boosting revenue, it said.
"We further believe the governments of Malaysia and Indonesia will remain committed to developing Islamic banking, with both on track to meet their ambitious growth targets for the sector," said Chen.
Moody’s said regulators in the countries are not just promoting growth, but are also steering banks to tackle emerging risks related to environmental, social and corporate governance (ESG) values while pursuing growth, a credit positive.
Malaysia, which has led the ASEAN region in regulatory efforts to support Islamic banking, has introduced a framework to incorporate ESG values in Islamic banks' operations and risk governance.
Moody's expects this development will create new growth opportunities for banks that follow sharia principles.
And in Indonesia, recent government initiatives to boost the country's halal economy and raise awareness of Islamic financial services will help the Islamic banking sector expand, said Moody’s.
Moody's full report can be accessed by subscribers at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1181835.