KUALA LUMPUR: Moody's Investors Service expects the expansion in its Islamic banking sector to enhance Malaysia's robust standing in the global Islamic finance industry.
The ratings agency deemed this development as credit positive, citing the provision of accessible, inclusive and Shariah-compliant digital banking services.
AEON Bank Bhd recently secured regulatory approval to launch an Islamic digital banking business in Malaysia, with plans for rollout expected in the first half of 2024 (1H24).
"We expect AEON Bank to act as a catalyst for further growth in the Islamic banking sector as there is strong awareness and high interest in Islamic digital banking in Malaysia.
"According to Visa Inc, 80 per cent of the consumers surveyed are keen to open an Islamic digital banking account.
"Muslim small and medium enterprises (SMEs) which deal with Islamic banks as their primary bank are also more likely to be interested in digital banking as compared to Muslim SMEs who mainly bank with non-Islamic banks," it said.
Moody's noted that the Malaysian Islamic banking sector has demonstrated robust growth in recent years, attributed to the government's "Islam First" strategies.
As of November 2023, Islamic financing constituted 41 per cent of the total financings, marking a substantial increase of 33 per cent from five years ago.
"There remains opportunities for the sector to grow as the proportion of individuals who are unable to or have limited access to services offered by incumbent banks accounted for 55 per cent of the population as of 2019," said Moody's.
Moody's highlighted that potential customers for Islamic digital banking include self-employed individuals engaged in online product and service offerings.
Traditional banks have historically refrained from lending to these segments due to the challenge of verifying salary income.
"However, as part of the AEON Group, we expect AEON Bank to tap into the customer pool and use the underwriting expertise of AEON Credit, which is already financing individuals that have been traditionally unable to access funding from banks," it added.