3/31/2005 8:30:00 AM GMT
Source: Bloomberg
HSBC is to become the first foreign bank to enter Indonesia's growing market for consumer loans and financial services that comply with the Islamic law.
"We are quite keen to enter the retail market," said Mahmoud Abushamma, head of HSBC Syariah, the bank's local Islamic unit. "There is a good possibility the bank will enter that area in the next 12 months."
In 2003, HSBC became Indonesia's first overseas bank that provides financial advice and loans that conformed with shariah, the Muslim law, which bans payment of interest and investments in the alcohol, tobacco and gambling.
It’s noteworthy that 85per cent of Indonesia’s population are Muslim.
Indonesia’s central bank predicts that Islamic banking assets will expand more than 12-fold by 2011 from $US1.48billion ($1.91billion), or less than 2 per cent of total banking assets.
Currently, HSBC manages $US1.75 billion of assets in Indonesia.
"Indonesia has the world's largest Muslim population, so one would naturally go where the numbers are," said Kelvin Miranda, who manages the equivalent of $US210 million at Asian Asset Management in Kuala Lumpur, including shariah-compliant stocks.
“Banks want a piece of the pie. Indonesia is a far more positive story now. There is increased investor confidence and growth is relatively strong."
According to investors, HSBC was likely to compete with other banks, including Standard Chartered and Citigroup in trying to win customers in Indonesia.
The government predicts that the country's $US222 billion economy, Asia's sixth largest, will grow 5.5per cent in 2005, the highest in nine years.
"The market is on the up, the economy is looking positive," said Mr. Abushamma.
HSBC is competing with Arab and Asian lenders to supply the growing market for Islamic financial services among the world's Muslims, including in Europe and the United States.
Last year, UK licensed the Islamic Bank of Britain, the first bank in Europe and the U.S. to offer only mortgages and accounts that comply with the Islamic Shariah; principles.
According to the UK's Financial Services Authority, assets controlled by Islamic banks worldwide, including Malayan Banking and Dubai Islamic Bank, total $US200 billion to $US500 billion and are growing by 10per cent to 15per cent annually.
"It is an expanding market," said Salam Saadeh, head of business and products development at United Arab Emirates-based Shuaa Capital investment bank, which manages about $US1 billion of assets in the Middle East and North Africa.
"You cannot ignore it. There are a lot of different clients who strictly invest according to shariah principles."