JAKARTA: The fastest growth in Indonesia's Shariah-compliant banking assets since 2003 is bolstering speculation that the government will meet its target for the industry next year.
Islamic holdings increased 49 percent to 145.5 trillion rupiah ($16.1 billion) in 2011, compared with an average 38 percent expansion over the previous five years, central bank data released on Feb. 15 showed.
That's less than Malaysia, a global Shariah finance hub, where assets total 389.3 billion ringgit ($129 billion), government data show.
Bank Indonesia has said it wants the industry to account for 5 percent of the country's total banking assets by 2013, from less than 4 percent now, and 10 percent by 2015 to 2020.
"The government's 5 percent goal is definitely achievable. The community is beginning to realize the need for alternative forms of banking," said Hendiarto, the Jakarta-based chief financial officer at PT Bank Muamalat Indonesia, the nation's second-largest Islamic lender.
Expanding Islamic banking assets increases the amount of funds Shariah lenders have available to invest in sukuk from Indonesia, awarded investment-grade status by Moody's Investors Service and Fitch Ratings in the past two months.
The last two auctions of rupiah-denominated sovereign Islamic bonds attracted bids for 3.2 times the amount offered, following a run of six sales starting in April in which targets weren't met.
The growth is luring foreign lenders, with Al Rajhi Bank, Saudi Arabia's largest, saying this month that it's chasing Islamic investment banking business in the Southeast Asian country and may open branches.
Dubai-based Standard Chartered Saadiq said it plans to add to its 11 outlets offering Shariah-compliant services at PT Bank Permata, the local lender in which it owns a 44.5 percent stake. Bank Indonesia sent recommendations aimed at boosting the industry, including tax breaks, to the Finance Ministry late last year.
Mulya Siregar, director of Islamic Banking at the monetary authority, was unavailable when Bloomberg tried to contact him by phone yesterday.
Global sales of Islamic bonds, which pay returns on assets to comply with the religion's ban on interest, reached $6.7 billion this year, compared with $3.1 billion in the same period of 2011, according to data compiled by Bloomberg.
Offerings reached a record $36.3 billion last year. Yields on Indonesia's 4 percent rupiah-denominated Shariah-compliant bonds due November 2018 have declined 44 basis points, or 0.44 percentage point, in the past three months to 3.66 percent yesterday, data compiled by Bloomberg show.
Sukuk are bonds that pay asset returns to comply with Islam's ban on interest.
The falling yields are spurring sales, with Bank Muamalat Indonesia saying in January it will offer as much as 1.5 trillion rupiah of sukuk in May or June.
PT Bank Syariah Mandiri, the Islamic unit of Indonesia's largest bank, will sell 500 billion rupiah of notes in the second half, Iggi Achsien, an adviser to the bank, said on Feb. 1.
The government sold 1 trillion rupiah of Islamic debt today, bringing forward a sale originally scheduled for next week. Around 86 percent of Indonesia's 246 million population are Muslim, according to U.S. government data, compared with 60 percent of Malaysia's 29 million people. (Bloomberg/aph)