Hong Leong is not a new competitor in Malaysia's Islamic banking market, as the bank previously served customers through its Islamic banking division. However, as the CEO and chairman of Hong Leong Islamic Bank (HLIB) explained, the launch of the new subsidiary is in line with Hong Leong's commitment to offer a variety of financial services to its customers, especially those seeking alternatives to conventional banking.
Indeed, HLIB represents a stronger commitment to this market, and will offer clients wishing to conduct their financial affairs under Sharia law a full range of banking and investment products to choose from. Under Sharia law it is considered usury to pay or receive interest, or 'riba'. This belief affects not only retail banking products such as savings accounts and mortgages, but also investment products such as bonds and contracts with fixed interest payments. Funds are also affected, with certain types of companies, such as those with primary interests including arms, alcohol, tobacco, pork, gambling, leisure or the media, usually proving incompatible with Islamic fund offerings.
Hong Leong Bank has made a good decision in launching its Islamic bank for two reasons. Firstly, Malaysia, where Islamic deposits and Islamic finance have grown rapidly, is an extremely attractive market for Sharia-compliant financial services. According to Bank Negara Malaysia, total Islamic deposits in Malaysia increased by 30.9% compounded annually from 1998-2004 to reach just over RM56 billion ($15 billion) by the end of 2004. This is considerably faster growth than that seen in conventional deposits over the same period (6.0% CAGR). Islamic finance has grown even more rapidly, by 41.3% compounded annually from RM7 billion ($2 billion) in 1998 to RM58 billion ($15 billion) in November 2004.
Secondly, with almost 200 branches and business centers nationwide, Hong Leong bank is in a strong position to refer Malaysian consumers wanting Islamic financial services to its fledgling bank.
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